Investing In Ireland

Taxation benefits of investment in Ireland

Ireland is recognised in Europe and around the world as a major inward investment location. Ireland has a leading reputation as an onshore EU OECD white-listed location. It is a key EMEA hub for the financial services, information technology, e-commerce, gaming and pharmaceutical sectors. It has a growing profile as the holding company EU location of choice and a location from which to own intellectual property. In the financial sector, Ireland is a world-leading location for asset and structured finance, insurance and investment funds.

In common with all other EU Member States, Ireland uses a sophisticated toolkit of tax rates, exemptions, allowances, credits and reliefs to attract various activities to its shores. At the epicentre of this regime is a 12.5% corporation tax rate for almost any trading activity carried out in the State, an exemption from tax for certain investment funds and share portfolio income, and an ability to structure cross-border transactions, including big ticket leasing, through Irish corporate and other vehicles so as to utilise Ireland's extensive double tax treaty network. Ireland currently has signed comprehensive double taxation agreements with 62 countries, of which 54 are in effect. The countries with which Ireland has a double taxation agreement outside the EU are: Australia, Bahrain, Belarus, Bosnia Herzegovina, Canada, Chile, China, Croatia, Georgia, Hong Kong, Iceland, India, Israel, Japan, Republic of Korea, Kuwait, Macedonia, Malaysia, Mexico, Moldova, Montenegro, Morocco, New Zealand, Norway, Pakistan, Russia, Serbia, Singapore, South Africa, Switzerland, Turkey, United Arab Emirates, United States of America, Vietnam and Zambia.

A company which is tax resident in Ireland is liable to tax at 12.5% on trading activities carried on in the State and in respect of dividends from certain foreign trading subsidiaries. A system of onshore pooling of foreign tax credits enables credit for foreign tax, including withholding taxes on profits out of which dividends have been paid, to eliminate the incidence of Irish tax.

Moreover, Finance Act 2010 introduced provisions which exempt dividends forming part of trading income of trading portfolio shareholdings. This exemption is particularly attractive for insurance companies and other financial institutions in receipt of dividend income on shares that represent less than 5% of, broadly, a company's issued share capital.

A 25% corporate tax rate applies to passive income, certain land dealing and oil, gas and mineral exploitation. Non-trading activities subject to tax at 25% are typically outside the scope of the new Irish transfer pricing regime. Set out below are various examples by which Ireland's tax regime may be used for differing businesses and other activities.

i. Ireland as a European Middle East and African ("EMEA") Hub

Numerous US and foreign corporates use Ireland as a location from which to develop their EMEA hub. Trading activity commensurate with the substance of the operations generates profits taxable at 12.5%. Foreign tax risks are minimised by ensuring that the EMEA hub is centrally managed and controlled from Ireland and activities associated with overseas tax presences are limited. The incidence of 12.5% tax is reduced through the use of foreign tax credits, Ireland's intellectual property regime and research and development credits (see below).

Foreign secondees are attracted to the EMEA hub by a mechanism that enables a portion of their Irish employment taxes to be refunded (see below for further details).

ii. Ireland as an Intellectual Property Location

Many corporates, especially in the pharmaceutical and e-commerce sectors, establish an intellectual property exploitation trade in Ireland that is taxable at 12.5%. This base is eroded through the use of Ireland's intellectual property box. This uses three features of the Irish tax system:

- Tax depreciation for intangible assets,

- Relief for withholding taxes and credit for foreign taxes,

- Research and development credit.

Tax Depreciation for Intangible Assets Acquired from Related / Third Party Entities

Tax depreciation is available for the capital expenditure incurred on intangible assets used for the purposes of a trade of the company. The tax write-off is available in line with the standard accounting treatment or, alternatively, companies can opt for a 15 year fixed write down of 7% per annum and 2% in the final year.

Relief is available where the intangible asset is acquired from either a foreign affiliate or a third party acquisition. Where intangible assets are transferred within a capital gains tax group, the acquiring company is entitled to claim the allowances provided that capital gains tax group relief is not claimed by the company transferring the assets.

The definition of intangible asset is very broad and includes patents, brands, trade names, copyrights, supplementary protection certificates and certain authorisations for the sale of medicines and associated rights and goodwill which is directly linked to an asset specified in the definition.

Finance Act 2010 broadened the definition of assets qualifying for this relief to include computer software ("end use" type) acquired for the purposes of its commercial exploitation. Secret processes or formulae or other secret information concerning industrial, commercial or scientific experience (whether protected by patent, copyright or a related right) are now also included within the definition of intangible assets. In addition, Finance Act 2010 entitles certain costs incurred on the application for the grant or registration of a patent, registered design, design right or invention, trade mark, trade name, trade dress, brand, brand name, domain name, service mark, publishing title, copyright or related right to qualify for this relief.

There is no clawback of the relief where the assets are sold more than 10 years (previously 15 years) after the beginning of the accounting period in which the asset was first provided unless it results in a connected company claiming the allowances. The company must prepare accounts under IFRS or Irish GAAP.

The relief is capped at 80% of the trading related income. This cap is an aggregate of both capital allowances and any related interest expense.

Relief for Withholding Taxes and Credit for Foreign Taxes

In general, Ireland imposes withholding tax on royalty payments paid to non-residents where it is a patent royalty or one where the royalty is regarded as "pure income profit".

Where Irish withholding tax applies, all of Ireland's double taxation treaties either substantially reduce or entirely eliminate Irish withholding tax on royalties paid to a non-resident treaty jurisdiction. Furthermore, relief from withholding tax may also be available under the EU Interest and Royalties Directive in respect of intra-EU transactions.

In addition to the above, Finance Act 2010 introduced unilateral relief for foreign tax suffered on royalties received from abroad. This generally results in no further liability to Irish tax arising as Ireland's tax rates are normally lower than the payor's jurisdiction.

The Irish tax authorities have also issued a practice statement as part of a suite of incentive measures to increase Ireland's attractiveness as a location for intellectual property. The practice statement, which took effect from 26th July 2010, allows patent royalties to be paid by an Irish tax resident company to a foreign company, including an entity that is resident in a non-treaty jurisdiction, without Irish withholding tax, i.e. patent royalties can be paid to Cayman/ Bermuda Companies free of withholding tax.

It should no longer be necessary to use back to back conduit structures by using locations such as Luxemburg or Malta.

The previous requirement was that 20% withholding tax was required to be operated on payment of patent royalties where it was being paid to a patent holder who was resident in a non EU/DTA State.

This change, which is being introduced by administrative practice, directly follows the change in Finance Act 2010 which exempted Irish companies from having to deduct withholding tax on paying patent royalties to a company resident in an EU/DTA State. Accordingly, this removes the requirement to rely on a treaty provision and, in some cases, can produce a better result than a specific treaty provision.

The exemption from the requirement to deduct withholding tax is available in the following circumstances:

- the recipient is the beneficial owner of the royalty payment and is a company which is neither resident in the State nor carrying on a trade in the State through a branch or agency; and
- the royalties are payable in respect of a foreign patent under a licence agreement that is executed in a foreign territory and subject to the law and jurisdiction of a foreign territory, and;
- the payment is made in the course of the Irish paying company's trade and the payment is not part of a back to back or other conduit arrangement.
A foreign patent is defined as a patent originally registered outside the State in relation to an invention developed outside the State. Advance approval is required from the Irish tax authorities and the application should be made to the tax office of the Irish company paying the royalty.

Research and Development Credit

Ireland offers a tax credit equal to 25% of certain incremental research and development ("R&D") expenditure, where the R&D activity is carried on either in Ireland or the European Economic Area. The R&D tax credit is calculated by reference to the in-house R&D costs above the base year spend of 2003. The R&D credit is used to directly reduce the corporate tax liability of the company and where the R&D credit exceeds the corporation tax for the year in which the expenditure was incurred, the excess can be:

- carried back against prior year tax liability;

- carried forward indefinitely for offset in future tax years; or

- be claimed as a refund in 3 instalments over a 33 month period (the amount of the refund is limited to the greater of either the corporation tax paid by the company for the proceeding 10 accounting periods or the payroll liabilities (i.e. PAYE, PRSI and levies) accounted for by the company in the accounting period in which the qualifying R&D expenditure was incurred).

The R&D credit is also available in respect of expenditure incurred on the construction (including refurbishment) of a building where R&D activities carried on by a company in that building over a 4 year period represent at least 35 per cent of all activities carried on in that building. The credit allowed is in proportion of the use of the building for R&D purposes over that 4 year period. A claw back arises where within 10 years of the accounting period in which the expenditure on the building was incurred, the building is sold or ceases to be used by the company for R&D purposes.

iii. Ireland as a Holding Company Location

As the international pressure against the use of tax haven locations intensifies, Ireland is attracting considerable attention as a holding company location of choice. The key drivers behind such moves are as follows:

• The Irish tax regime provides a platform for multi-nationals to own shares in subsidiaries through Ireland without attracting an incidence of Irish tax liabilities on dividends or capital gains;
• Irish holding companies are not exempt to Irish corporation tax. They can obtain the benefit of Ireland's network of double tax treaties. Holding companies resident in tax havens have limited access to a network of treaties to reduce or eliminate withholding taxes.
• In accordance with the Treaty of Rome, Ireland's tax regime only seeks to tax corporates in respect of activities carried on in the State. It does not seek to tax profits of companies resident in other jurisdictions. Accordingly, unlike other EU Member States, Ireland does not have a controlled foreign companies' regime.
• Stamp duty at 1% on transfer of shares in a company tax resident in Ireland may be avoided by either incorporating the holding company outside of Ireland, but maintaining central management and control in Ireland, or using an Irish incorporated company with American Depository Receipts or the equivalent.

iv. Ireland as a Location for Financial Services

Ireland offers an attractive regime in which to domicile regulated investment funds and is a preferred location for fund administration, custody and management. An Irish fund can be established as one of the following legal structures:

• Investment company;
• Unit trust;
• Common contractual fund; and
• Investment limited partnership.

The two regulated fund regimes in Ireland are:

• Undertakings for Collective Investment in Transferable Securities ("UCITS"); and
• Non-UCITS.

A UCITS fund must be an open-ended fund and can avail of a "single passport" throughout the EU for the sale of its units/shares. This means that UCITS, once established and regulated in Ireland, can be sold to the public in all of the EU Member States once the appropriate notifications have been made to the local authorities.

The non-UCITS regime is an attractive investment vehicle for fund managers who wish to target sophisticated investors, namely institutional and high net worth individuals. Certain funds which employ more complex investment strategies posing greater risk may not be permissible under the UCITS regime but can be set up as a non-UCITS fund. The term "non-UCITS" is generally used to describe all authorised Irish investment funds which are not UCITS.

The qualifying investor fund ("QIF") has become one of Ireland's most successful non-UCITS as QIF's offer flexibility for alternative investments e.g. hedge funds, fund of hedge funds, private equity funds, real estate investment funds. QIF's are only open to certain investors e.g. the minimum subscription per investor in a QIF is €100,000 and investment in a QIF is limited to:

• an investor who is a professional client within the meaning of Annex II of Directive 2004/39/EC (Markets in Financial Instruments Directive) ("MiFID"); or
• an investor who receives an appraisal from an EURO credit institution, a MiFID firm or a UNITS management company, that the investor has the appropriate expertise in the scheme; or
• an investor who certifies that they are an informed investor by providing the following:
• confirmation (in writing) that the investor has such knowledge of and experience in financial and business matters as would enable the investor to properly evaluate the merits and risks of the prospective investment; or
• confirmation (in writing) that the investor's business involves, whether for its own account or the account of others, the management, acquisition or disposal of property of the same kind as the property of the scheme.

In order to meet the requirements of existing fund providers and become a more attractive location for alternative investments, the Irish Central Bank can now authorise a QIF, on a filing basis only, within 24 hours of submission of the relevant documentation.

Regulated funds benefit from the following attractive tax provisions:

• they are exempt from tax on their income and gains irrespective of an investor's residency. This allows investors returns to roll up on a gross basis;
• under domestic legislation, no withholding tax is applied on income distributions or the redemption of units by a fund to a non-Irish resident investor, provided a relevant declaration is in place to demonstrate that the investor is not an Irish resident. It is not necessary for an investor to be resident in a country with which Ireland has a double tax treaty to avoid withholding;
• no Irish stamp duty is applied on the establishment, transfer or sale of units or shares in an Irish regulated fund; and
• many of the services provided to a fund are exempt from VAT, e.g. investment management, administration and custodial services.

Ireland recently introduced new fund re-domiciling laws under the Companies (Miscellaneous Provisions) Act 2009 which provides a streamlined process for a non-Irish corporate fund re-domiciling to Ireland. These provisions were introduced to facilitate existing Irish fund managers to relocate non-Irish funds to Ireland. The process involves the filing of registration documentation with the Irish Companies Registration Office and simultaneously applying for authorisation as a regulated fund with the Irish Central Bank. Funds can be re-domiciled to Ireland with the avoidance of an Irish taxable event for the Investors, however, the Investors' local tax consequences would need to be considered. If appropriately structured, no charge to Irish stamp duty should arise on either the transfer of the assets in the fund or on the exchange of units in the fund.

In June 2009, the European Council of Ministers approved the UCITS IV Directive which was published on 17 November 2009 in the Official Journal of the European Union. The UCITS IV Directive contains a number of enhancements to the existing UCITS regime. Some of the main features of the UCITS IV Directive include:

• the introduction of a management company passport scheme whereby a management company authorised by its home Member State is allowed to provide a full range of collective portfolio services to UCITS established in another Member State of the European Union. Subject to certain investor protection constraints, the cross-border merger of all types of UCITS is now allowed and is recognised by each Member State. This should enable the consolidation of domestic and international funds which would provide pooling opportunities for the taking advantage of economies of scale, thereby offering cost savings and enhanced returns;
• the Directive will allow for feeder funds to pool assets into a single master fund under the master feeder provisions;
• a new Regulator to Regulator notification procedure is being introduced to remove administrative obstacles and delays relating to the cross-border funds distribution process;
• a new standard summary information document known as the "key investor information" is being introduced to replace the simplified prospectus. The key investor information document is intended to be a briefing document, written in a non-technical format, prior to the investors making the subscription and relevant investment. The aim of the new briefing document is to enable the investor to reach their investment decision on a more informed and timely basis; and
• specific measures are being introduced which are designed to improve communication between regulatory authorities in the Member States.

In addition to the above, Finance Act 2010 introduced changes with the intention of enhancing Ireland's competitive position in the funds industry. One such change was the easing of the administration burden on non-resident declarations forms whereby the Revenue Commissioners can grant investment undertakings approval from the requirement to obtain and maintain declarations of non-Irish tax resident unit-holders where Revenue are satisfied that the investment undertaking has appropriate measures in place to ensure that the relevant unit holders are not resident or ordinarily resident in Ireland.

Ireland as a Location for Asset Finance

The Irish tax regime has been a key driver in the growth of the asset finance industry, particularly aircraft leasing, the highlights of which are:

• a standard rate of corporation tax of 12.5% on trading profits;
• tax depreciation for equipment is allowed to be claimed over 8 years i.e. 12.5% per annum. This essentially allows for accelerated tax depreciation as the economic life of aircraft is substantially longer;
• no withholding tax is imposed on equipment lease rentals paid to non-residents;
• access to Ireland's extensive double taxation treaty network which generally contain advantageous withholding tax provisions on equipment leasing;
• no charge to Irish stamp duty arises on the transfer of ownership of aircraft;
• for aircraft lessors, VAT leakage does not arise on aircraft leasing as the aircraft lessor generally enjoys full recovery of VAT on costs associated with the aircraft leasing business;
• through domestic law exemptions, no withholding tax is applied on interest and dividends paid to non-residents located in the EU or a country with which Ireland has a double taxation treaty;
• chargeable gains arising on the disposal of plant and machinery used in the course of a leasing trade can be included in the company's trading income;
• where a lease-in/lease-out company is not regarded as trading for Irish tax purposes, the company would be subject to Irish tax at a current rate of 25% on its lease profit margin and after deduction of certain revenue expenses relating to the lease e.g. audit fees etc. As the company is not carrying on a trade in Ireland, it would typically be outside the scope of the new Irish transfer pricing regime; and
• Finance Act 2011 extended the assets qualifying for securitisation under Section 110 to plant and machinery acquired by the SPC whose business is the leasing of plant and machinery (see Ireland as a location for Securitisation and Structured Finance SPC's for further details).

Short Term Asset Leasing

An alternative taxing mechanism for lessors of certain short-term assets (i.e. assets which have a predictable useful life that does not exceed 8 years) is available. A lessor company may claim all such income to be computed for tax purposes under accounting rules rather than under existing tax rules. This results in the "interest element" of lease payments being taxed with no entitlement to capital allowances (i.e. tax depreciation). The alternative mechanism does not change the amount of tax paid but allows a more even spread of the tax over the lease period.

To date, it is not possible to claim this alternative method of taxation for assets leased under operating leases. However, Finance Act 2010 extended the alternative taxing mechanism to operating leases where a number of conditions are met. This election provides for the lessor to be taxed on the accounting profit of those leases. In brief, where a lessor company elects for this treatment, the new provisions apply to operating leases of short life assets which are in excess of a threshold amount. The threshold amount is calculated by reference to the size of the lease portfolio.

Where the lessor company is a member of a group, the threshold amount is calculated on a group basis and represents the total value of all short life assets let on an operating lease which are owned by the group at the end of the preceding accounting period for which the election is made. This essentially means that the new treatment will apply only to increases in the portfolio of assets held by the group. The existing tax treatment will continue to apply to amounts below the threshold.

Foreign Currency and Non-Trading Lessors

Finance Act 2010 introduced changes for companies whose activities include the leasing of plant and machinery but are not carrying on sufficient activities to be regarded as carrying on a trade. The amendments enable such companies to compute their capital allowances and losses in their functional currency thereby eliminating potential foreign exchange gains/losses resulting on the conversion of accounting profits into Euro.

Ireland as a Location for Securitisation and Structured Finance SPC'S

Ireland is a key location for cross bordered structured finance transactions. Irish tax law includes favourable provisions for qualifying Special Purpose Companies ("SPC's") who hold and/or manage, or have an interest (including a partnership interest) in qualifying assets including, in the case of plant and machinery acquired by the SPC, a business of leasing that plant and machinery. Qualifying assets include:

- shares, bonds and other securities;
- futures, options, swaps, derivatives and similar instruments;
- invoices and all types of receivables;
- leases and loan and lease portfolios;
- hire purchase contracts;
- bills of exchange, commercial paper, promissory notes and all other kinds of negotiable or transferable instruments;
- carbon offsets;
- contracts for insurance and contracts for reinsurance;
- commodities (tangible assets other than currency, securities, debts or other assets of a financial nature) which are dealt in on a recognised commodity exchange; and
- plant and machinery.

The main conditions to satisfy, in order to be a qualifying SPC, are that the company must be Irish tax resident and the de-minimis asset value limit in respect of the first securitisation transaction carried out by the SPC is €10M.

The SPC is typically taxed in Ireland at a corporation tax rate of 25%. However, critically, the return paid on certain profit participating loan notes is tax deductible. The net effect is that an SPC can avail of Ireland's double tax treaty network to avoid withholding tax at a current rate of 20% on interest payments (other than short interest) paid by the SPC to non-residents. There are domestic law exemptions from withholding tax on interest paid on Quoted Eurobonds or on interest paid by the SPC to a resident in another EU member state or a country with which Ireland has a double tax treaty.

Finance Act 2011 restricts the deduction for profit participating interest payments to circumstances where the interest is paid:

i) to a person who is tax resident in Ireland,
ii) to a pension fund, government body or other tax exempt person resident for tax purposes in a Member State of the European Communities or a jurisdiction which has a double tax treaty having force of law with Ireland, or on completion of the procedures, will have force of law in Ireland (i.e. a "Relevant Territory"),
iii) to a person resident for tax in a Relevant Territory which generally applies tax to foreign source profits, income or gains (without a reduction calculated based on the amount of the payment),
iv) on either a Quoted Eurobond or a Wholesale Debt Instrument, or
v) the interest payment has been subject to Irish withholding tax.

The proposed changes do not impact existing arrangements in place as at 21 January 2011.

A "Quoted Eurobond" means a security which is:

- issued by a company;
- quoted on a recognised stock exchange; and
- carries a right to interest.

As a taxable Irish resident company, the qualifying SPC is entitled to take advantage of Ireland's double tax treaty network and the EU directives. Ireland currently has 62 double tax treaties in place, of which 54 are in effect. The countries with which Ireland has a double tax treaty outside the EU are: Australia, Bahrain, Belarus, Bosnia Herzegovina, Canada, Chile, China, Croatia, Georgia, Hong Kong, Iceland, India, Israel, Japan, Republic of Korea, Kuwait, Macedonia, Malaysia, Mexico, Moldova, Montenegro, Morocco, New Zealand, Norway, Pakistan, Russia, Serbia, Singapore, South Africa, Switzerland, Turkey, United Arab Emirates, United States of America, Vietnam and Zambia. Negotiations for new treaties with Armenia, Panama, Saudi Arabia and Thailand have been concluded and are expected to be signed shortly. Negotiations for new treaties with Argentina, Azerbaijan, Egypt, Tunisia and Ukraine are at various stages.

For noteholders resident in the EU or the countries listed above, no Irish income tax liability would arise on interest paid by the qualifying SPC. For noteholders not resident in the EU or countries with which Ireland has a double tax treaty, there is an unpublished Revenue practice whereby the Irish Revenue do not take action to pursue a liability for the Irish tax where such persons are not otherwise subject to tax in Ireland or do not seek to obtain a refund of tax in respect of other Irish source income which has been subject to Irish tax.

Ireland as a Location for Insurance

In recent times, some of the leading players in insurance and reinsurance have re-domiciled their global headquarters to Ireland. A number of factors including the favourable tax regime in Ireland have been citied as the basis for this decision which includes a gross roll up system for life assurance companies. This allows policyholders' investments to grow tax-free throughout the term of the investment. A charge to tax is imposed at the time when payment is made to the policyholder, following the surrender or encashment of the policy. The investment return or growth is liable to tax at the current rates of 27% or 30% (depending on the nature of the payment) which the assurance company is required to deduct on payments to the policyholder. There are exemptions available from this tax charge where the policyholder is not resident for tax purposes in Ireland.

Ireland has also been the jurisdiction of choice for a large number of captive insurers due to its flexible pro-business regulation and favourable tax regime. For example, Irish authorised insurance and reinsurance undertakings are entitled to underwrite business in other EU member states thereby increasing the size of potential market for pan-European business. In January 2011, Ireland had 115 reinsurance undertakings authorised by the Irish Central Bank to carry on reinsurance business.

Ireland operates a different basis of taxation for companies engaged in life and/or non-life business. The Irish Revenue Authorities have issued detailed guidance outlining how Life Assurance businesses should be taxed. Life business of an assurance company is treated for Irish corporation tax purposes as though it was a separate business from any other business carried on by the company. The life business tax computation for proprietary companies is calculated as follows:

• the basis of computation is the transfer to the non-technical account;
• a proportion of the transfer to the fund for future appropriation (FFA) will be regarded as taxable shareholders' profits with the balance treated as belonging to the shareholders;
• the annual transfer to the shareholders' non-distributable reserve is taxable as it is regarded as allocated to the shareholders;
• the general tax rules apply to disallowable and allowable expenses; and
• a deduction is allowed for Irish dividend income included in shareholders' profits.

General insurance i.e. non-life business is taxed under the same rules as other trades carried on in Ireland however, there are some differences relating to the treatment of investment income, realisation of investments, technical reserves and the funded basis of accounting. For example, the Irish Revenue Authorities allow interest earned on investments integral to the trade e.g. investments kept for regulatory capital requirement purposes, to be regarded as trading income in computing the taxable profits of the insurance company. Such interest would therefore be subject to the standard corporation tax rate of 12.5% rather than the passive rate of 25%.

The general insurance levies are currently 3% (in the case of non-life premiums) and 1% in the case of life premiums. Finance Act 2010 introduced provisions to exclude pensions business and reinsurance business from the 1% life assurance levy. This proposal was very welcome in promoting Ireland as a jurisdiction for reinsurance business. The levies do not apply where the risk of the policy is deemed to be located outside of Ireland. The risk of a policy of insurance is deemed to be located in Ireland where:

- the insurance relates to either buildings or to buildings and their contents if the property is situated in Ireland;
- the insurance relates to vehicles of any kind registered in Ireland;
- in the case of policies of a duration of 4 months or less covering travel or holiday risks, if the policyholder took out the policy in Ireland; or
- in any other case, if the policyholder has his or her habitual residence in Ireland, or where the policyholder is a legal person other than an individual, if the policyholders' head office or branch to which the policy relates is situated in Ireland.

Dividends paid between Irish resident companies are exempt from Irish corporation tax. Finance Act 2010 extended this exemption to dividends received by an Irish resident company from foreign companies where the Irish company is taxed on this dividend income as trading income and the Irish company holds less than 5% of the share capital and voting rights in the foreign company. This will benefit companies in the insurance and banking sectors.

Ireland as a Location for Islamic Finance

"Ireland Inc." is very aware of the importance of the financial services industry to Ireland and the role of Islamic finance in this industry. For example, the Irish Central Bank have established a dedicated team which is specialising in the authorisation of Shari'ah funds in Ireland In addition, the Irish tax authorities issued a tax briefing in October 2009 outlining the tax treatment of Shari'ah compliant products and structures within the funds, leasing and insurance industries.

This briefing noted, in respect of the tax treatment of Shari'ah compliant products and structures in the sub-industries, the following;

Funds

The primary characteristic that distinguishes Islamic fund management from conventional fund management is its compliance with Shari'ah law. A Shari'ah Fund is required to appoint a Shari'ah Board which advises the directors of the fund and the investment manager on all matter of Shari'ah law and whether the proposed investments are Shari'ah compliant.

The gross roll up taxation regime which applies to Irish regulated funds does not impose tax on profits or gains of the fund but requires the fund to deduct tax on the happening of certain chargeable events. These arrangements apply irrespective of whether the fund is Shari'ah compliant or a conventional fund. As Ireland is a leading international jurisdiction for the domiciling and servicing of investment funds, there has been a significant increase in Shari'ah compliant funds being domiciled and administered in Ireland. Industry companies in Ireland provide services to structures including, amongst others, Shari'ah funds promoted and managed by managers in Middle Eastern and North African countries which use Islamic financial instruments.

Ijarah (Leasing and Hire Purchase) Arrangements

Ijarah arrangements in relation to operating leases or hire purchase arrangements are to be taxed in the same manner as conventional operating lease or hire purchase arrangements. Ijarah Muntahia Bittamleek arrangements in relation to finance leases are to be taxed in the same manner as conventional finance lease arrangements. Accordingly, a company who accounts for the transaction as a finance lease under GAAP may elect, in respect of certain short term leases, to be taxed under the accounting rules rather than under existing tax rules with no entitlement to capital allowances being available.

A charge to stamp duty does not arise in relation to Ijarah (leasing and Hire Purchase) Arrangements where the asset involved does not comprise of immovable property or an interest in immovable property.

Takaful (Insurance) Arrangements

In relation to general Takaful (insurance) and Re-Takaful (reinsurance) arrangements;

• contributions received by a Takaful company from policyholders are treated as taxable income. Likewise, contributions received by a ReTakaful company from Takaful companies, as members of the ReTakaful arrangement, are to be treated as taxable income;
• the deductibility of expenses incurred by a Takaful or ReTakaful company for management, marketing, claims and commissions and any provisions in respect of same is treated in the same way as expenses incurred by a conventional insurance/reinsurance company;
• the deductibility of contribution payments paid to a Takaful or ReTakaful company is treated in the same way as an insurance or reinsurance premium for a conventional insurance or reinsurance arrangement;
• A liability to stamp duty will arise in relation to policies of insurance or policies of life insurance issued under Takaful and ReTakaful arrangements where the risk of the policy is located within Ireland.

Finance Act 2010 also introduced legislation designed to ensure that certain Islamic or Shari'a compliant financial products, which are the same in substance as conventional products, are treated on an equal footing for tax purposes as conventional products. The transactions covered by the legislation include "credit" (akin to a credit sale or conventional loan arrangement), "deposit" and "investment" (akin to a structure finance arrangement) transactions. The legislation only applies to transactions entered into on an arms length basis and undertaken for bona fide commercial purposes.

Start Up Companies' Exemption

Ireland offers an incentive for new company start-ups. Certain start-up companies which commenced to trade on or after 1 January 2009 and whose final corporation tax liability for each tax year does not exceed €40,000, are exempt from corporation tax (including capital gains tax) in each of the first three tax years. Finance Act 2011 extended this incentive for qualifying companies which commenced to trade in 2011.

Non-Irish Domiciled Individuals

Ireland offers a favourable tax regime for non Irish domiciled individuals as such individuals are subject to the remittance basis of taxation in Ireland (both for income and capital gains tax purposes). In brief this means that, with the exception of employments exercised in the State and Irish source income and gains, a non-Irish domiciled Irish tax resident individual is not subject to Irish income or capital gains tax on foreign source income or gains where the income or gains are not remitted into Ireland. This ensures that, with careful tax planning, the non-Irish domiciled individual can be largely outside the scope of Irish income and capital gains tax.

In addition, Ireland offers a favourable relief to non-Irish domiciled individuals who are assigned to Ireland from an EEA or Treaty resident employer. The qualifying employee can apply to the Revenue Commissioners to have Irish income tax on their Irish employment assessed on the greater of:

- the relevant emoluments earned and received in or remitted into the State; and

- an amount equal to €100,000 plus 50% of the relevant emoluments in excess of €100,000.

Income tax deducted at source by the Irish employer in excess of the income tax liability calculated on the above basis can be claimed as a refund by the relevant employee.

Green IFSC Initiative

On January 27th 2011, then Irish Prime Minister Brian Cowen announced the launch of the Green IFSC (International Financial Services Centre) Initiative. By supporting the establishment of the Green IFSC, Ireland is positioning itself as a leading financial services centre for the management of carbon and green finance,including the establishment of a Government supported International Carbon Standard (ICS) and associated Dublin International Voluntary Offset Registry (DIVOR). Two key elements of the Green IFSC Initiative include:

The extension of the Irish Section 110 legislation which extends the definition of financial assets to include carbon offset specifically. Previously, Section 110 companies could deal in "greenhouse gas emissions allowances", however Finance Act 2011 substituted "carbon offsets" for these allowances. Carbon offsetshave been defined to mean;

(a) an allowance, permit, licence or right to emit during a specified period, a specified amount of carbon dioxide or any other greenhouse gas as defined in Directive 2003/87/EC of the European Parliament and of the Council of 13 October 2003 establishing a scheme for greenhouse gas emission allowance trading within the Community and amending Council Directive 96/61/EC of 24 September 1996, where such allowance, permit, licence or right is issued by a State or by an inter-governmental or supra-national institution pursuant to a scheme which;

(i) imposes limitations on the emission of such greenhouse gases, and
(ii) allows the transfer for value of such allowances, permits, licences or rights;

(b) an allowance, permit, licence or right to emit during a specified period, a specified amount of carbon dioxide or any other recognised greenhouse gas under a voluntary scheme sponsored by a State or by an inter-governmental institution, or regulated commercial enterprise, where such allowance, permit, licence or right is subject to recognised independent periodic verification, monitoring and reporting; or

(c) any right that is directly attributable to an allowance, permit, licence or right to emit within subparagraph (a) or (b).

The benefits of Section 110 companies are outlined in the "Ireland as a location for Securitisation or Structured Finance SPC" Section.

The Irish Government has agreed in principle to provide seed funding of €6.8m over 3 years to develop the concept with a view to creating green financial services jobs of approximately 7,000 over the next 5 years. The establishment of the Green IFSC sends out a clear message that Ireland continues to remain open forbusiness and will remain a leading financial services centre for the management of carbon and green finance.

The Enterprise Agencies in partnership with the Green IFSC Steering Group are currently working on a detailed business plan which is due to be finalised by March 2011 which will then be presented to the Government for approval. With the considerable opportunities globally in green finance, carbon management and the growth of the green economy, Ireland through the Green IFSC Initiative is positioning itself as a world leader in this area and a country of choice for green financial services.

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