In an effort to further enhance Ireland's tax regime's transparency, Finance Act 2014 announced changes to Ireland's corporate tax residence rules. Broader corporate tax residence reform was introduced from 1 January 2015 to ensure that Irish incorporated companies can only be considered non-Irish resident under the terms of a double tax treaty (DTT). These provisions are effective from 1 January 2015 for newly incorporated companies. In order to give certainty to companies with existing Irish operations (i.e. incorporated prior to 1 January 2015), the changes include a transition period to the end of 2020. While current Irish companies should not need to take immediate action, in the transitional period to 31 December 2020, all groups with Irish operations need to carefully monitor the corporate tax residence position of Irish incorporated, non-resident companies that do not satisfy the sole exception contained within the Finance Act 2014 provisions. This includes, for example, considering the impact of any proposed merger and acquisition (M&A) transactions involving both change in ownership and business changes/integration measures.
For companies incorporated before 1 January 2015, a company incorporated in Ireland or that has its place of central management and control in Ireland will be regarded as resident in Ireland for the purposes of corporation tax and capital gains tax. However, the link between incorporation and residency does not apply if (i) an Irish incorporated company is considered non-Irish tax resident under the terms of a DTT ('treaty exemption') or (ii) where the incorporated company or a related company carries on a trade in Ireland and either the company is ultimately controlled by a tax resident of an EU member state or a country with which Ireland has a DTT, or the company or related company are quoted companies ('trading exemption'). Where the conditions of the trading exemption are met, the company's location of tax residence is determined by the jurisdiction where the company has its place of central management and control. However, the trading exemption does not apply if an Irish incorporated company's place of management and control is in a jurisdiction that only applies an incorporation test for determining residency (and the company would thus not be regarded as tax-resident in any jurisdiction).
Permanent establishment (PE)
Non-resident companies are subject to Irish corporation tax only on the trading profits attributable to an Irish branch or agency, plus Irish income tax (generally by way of withholding, though this is not the case with Irish-source rental profits) on certain Irish-source income.
Subject to the terms of the relevant DTT, a non-resident company will have a PE in Ireland if:
- it has a fixed place of business in Ireland through which the business of the company is wholly or partly carried on, or
- an agent acting on behalf of the company has and habitually exercises authority to do business on behalf of the company in Ireland.
A fixed place of business includes (but is not limited to) a place of management; a branch; an office; a factory; a workshop; an installation or structure for the exploration of natural resources; a mine, oil or gas well, quarry, or other place of extraction of natural resources; or a building, construction, or installation project. A company is not, however, regarded as having an Irish PE if the activities for which the fixed place of business is maintained or which the agent carries on are only of a preparatory or auxiliary nature (also defined in the statute).
See the Other taxes section for a description of the exit tax rules.