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5.6. Qualification of Specific Income Categories for Tax Purposes

Ireland applies two corporate tax rates: a 12.5% rate for trading income, and a 25% rate for non-trading income (passive income, such as interest, royalties and dividends). There is also a 33% rate for capital gains to the extent they are taxable. In order to qualify for the 12.5% rate, the following conditions must be satisfied:

  • The company must be a trading company and the trade must be conducted in and controlled from Ireland; and
  • The factors necessary for the activity (e.g. specialized personnel) must be located in Ireland.

Income from the management of IP rights and similar intangibles will often qualify as trading income eligible for the 12.5% rate. In order to be so eligible, the activity must consist of the management of an IP/intangibles portfolio, and the development, exploitation, promotion and licensing of IP rights and similar intangibles. Factors taken into account in determining eligibility for qualification as trading income include the following:

  • Whether the company is responsible for the strategic and operational management of the IP/intangibles; and
  • Whether the company incurs expenditure (e.g. R&D, marketing, etc) and bears responsibility for the development/protection of the IP/intangibles.

A ruling confirming eligibility for the corporate tax rate for trading income can be sought from the tax authorities.

Nearly all active business pursuits will qualify for the 12.5% rate, which is available to all industries and sectors. Since the introduction of the 12.5% rate, the objective of most investments is to avail of the possibilities presented to unbundle the traditional value chain and locate appropriate profit generating functions in Ireland.

The following are examples of activities found within the traditional value chain which can be unbundled and carried out in Ireland:

  • Management activities (for example, legal, accounting, human resources, and finance);
  • Financial activities (e.g., cash management, banking, and insurance);
  • E-business (e.g., CRM, procurement, distribution, supply chain management, marketing, and sales);
  • Technical activities (e.g., data management and data security);
  • Research and Development;
  • Ownership and exploitation of intellectual property; and
  • Distribution activities.