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10. INCENTIVES AND SPECIAL REGIMES

Ireland provides a number of incentives with primary focus on research and development, investment, and employment. The following covers Ireland's primary incentives and regimes.

R&D Related Incentives

Research and Development Tax Credit

Ireland has provided for a tax credit of up to 25% of a company's qualifying research and development expenditure, which can be used to offset Ireland corporate income tax, gain refunds, or reward employees.

The Research & Development Tax Credit Guidelines stipulate that the credit is equal to 25% of all qualifying expenditure for R&D activities undertaken within the EEA by companies subject to Irish tax. Previously a limit applied where only the amount of qualifying expenditure exceeding a 2003 base year expenditure amount was eligible, but this was abolished with effect from 1 January 2015.

R&D Outsourcing Expenditure

If an enterprise outsources their R&D activities to an unconnected third party, the related R&D credit is limited to the greater of EUR 100,000 or 15% of the expenditure for R&D carried on by the enterprise itself. If the third party is a university or institute of higher education, the R&D credit limit is the greater of EUR 100,000 or 5% of the expenditure for R&D carried on by the enterprise itself. Prior to 1 January 2014, the percentage of expenditure limit is 10% for outsourcing to a third party that is not a university or institute of higher education.

Credit Use

The tax credit can be used in a number of ways, including the following.

CIT Offset

The tax credit can be used to offset corporate income tax in the year of assessment in which the expenditure occurred, can be carried back to the immediately previous period, or carried forward indefinitely.

Refund

The credit can also be converted to refund payment from the Ireland tax authorities over 33 months. The amount is limited to either the CIT paid by the enterprise in the preceding 10 accounting periods, or the total payroll liabilities accounted for by the enterprise in the period in which the expenditure was incurred.

Reward Key Employees

In addition to using the credit to offset CIT or obtain a refund, it can also be used as a tax free reward to "key employees". In order to qualify as a "key employee", the employee must spend at least 50% of their time engaged in R&D activity. The employee must not be, or have been, a director of his or her employer company or an associated company, and must not be not connected to such a director. The employee must not have, nor have had, an individual holding of more than 5% of the shares of the company or an associated company and must not be connected to a person who has such a material interest.

R&D Building Tax Credit

Ireland provides an additional 25% tax credit in regard to expenditure incurred in the construction or refurbishment of qualifying R&D buildings. In order to qualify, at least 35% of a building must be used for qualifying R&D activities over a period of four years. When calculating the credit the amount of expenditure is limited to the percentage of the building that is used for R&D. The credit can be used in the same manner as the above R&D tax credit; CIT offset, tax refund, or key employee rewards. The incremental requirement of R&D activity expenditure does not apply for R&D buildings.

Qualifying expenditure on the construction or refurbishment of a qualifying building may be treated as having been incurred either:

  • On the date it was actually incurred; or
  • On the date the building was first brought into use for the purposes of a trade; or the refurbishment is completed as appropriate.

The cost of acquiring the land on which the building or structure is erected does not qualify for the R&D credit.

Investment/Employment Related Incentives

Employment and Investment Incentive Scheme

Under the Employment and Investment Incentive Scheme (EIIS), Ireland provides for tax relief by allowing qualifying investments in new ordinary shares of up to EUR 150,000 per year up to 2020 to be used as a tax deduction. Qualifying investments are those in micro, small and medium sized enterprises engaged in most business types, but excludes the following areas:

  • Adventures or concerns in the nature of trade
  • Commodities or futures in shares, securities or other financial assets
  • Financing
  • Professional services
  • Land development
  • Forestry
  • Operating or management of hotels, guest houses, self catering accommodation or comparable establishments (such business approved as Tourist Traffic Undertakings can qualify for the EIIS)
  • Operating or managing nursing homes or residential care homes
  • Coal, steel, or shipbuilding industries
  • Film production

Generally, the invested company cannot be listed on a stock exchange. Note, however, that companies listed on the Enterprise Securities Market or whose shares are traded in an over-the-counter can qualify.

The initial tax relief is 30% of total income of the investor. Additional relief of 11% can be obtained after a three-year holding period if employment levels of the invested company have increased or the invested capital was used for R&D activities. If the tax relief exceeds the EUR 150,000 cap, it can be carried forward.

Additional qualifications include:

The Investor

  • Must be an Ireland resident in the year a relief claim is made
  • Cannot not be connected to the invested company in the relevant period, which can be defined as:
    • The investor is a partner of the company
    • The investor owns or is entitles to acquire more than 30% of the share capital, loan capital, or voting rights of the company
    • The investor controls the company
    • The investor invests in the company as part of a deal where a person connected with the invested company then invests in another company with which the investor is connected
    • Note, however, that the connected party restrictions do not apply when an investor invests in their own company where the amounts subscribed for share and loan capital do not exceed EUR 500,000

The Invested Company

  • Must be incorporated and resident of Ireland, or in a European Economic Area Member State but carries on business in Ireland through a branch or agency
  • Must carry out trade or business in Ireland, or wholly own a qualifying subsidiary carrying out trade or business in Ireland, throughout a three-year holding period
  • Share capital must be paid in full
  • Must fall within the EU definition of micro, small and medium sized enterprises, which is less than 250 employees, and EUR 50 million or less in annual turnover or annual balance sheet total of EUR 43 million or less
  • Maximum investment obtained by any one company is EUR 10 million, limited to EUR 2.5 million in a year

The tax relief is immediately available for investments in established enterprises or after four months for new enterprises. If an invested enterprises is not actively engaged in trade or business, relief cannot be claimed until the enterprises commences trade or business, which must occur within two years of the investment. The relief can also be claimed if the invested enterprise uses at least 30% of the investment to engage in R&D activities with the view of carrying on trade or business.

Special Assignment Relief Program

To promote the attraction of key talent to Ireland, create jobs, and develop the business environment overall, Ireland provides the Special Assignment Relief Program (SARP). The program allows for a deduction in taxable income of a qualifying employee subject to certain conditions.

To qualify for relief the following conditions must be met:

  • The employee must be assigned to work in Ireland by their employer and arrive in Ireland in 2015, 2016 or 2017;
  • Prior to being assigned to work in Ireland they must have worked for at least six months for the same employer in a country which has a DTA or tax information exchange agreement with Ireland (or associated company of such employer);
  • The employee must not have been tax resident in Ireland for the 5 years preceding the year of arrival; and
  • The employee must be an Irish resident in the year for which relief is applied.

If the above conditions are met, 30% of the employee's income exceeding EUR 75,000 can be deducted for up to five consecutive tax years. The SARP relief can be claimed by the employee by filing a tax return or by the employer at source by applying with the Irish tax authority. Employees with income of EUR 75,000 or less cannot receive any relief.

For employees who came to Ireland in 2012, 2013, or 2014, the months of employment condition is twelve months instead of six months. The other conditions are similar.

Renewable Energy Generation Investment

In addition to the EIIS above, Ireland provides for tax relief for investment in certain renewable energy projects that have been certified by the Minister for Communication, Energy & Natural Resources. The amount of qualifying investment cannot exceed the lesser of either half of the total investment of a project or EUR 9,525,000. Note, however, that an enterprise can receive tax relief for qualifying investment in multiple projects up to EUR 12.7 million in a 12 month period.

Qualifying projects include the following categories of technology:

  • Solar power
  • Wind power
  • Hydro power (including ocean, wave or tidal energy)
  • Biomass

Property Investment Incentives

Ireland provides a number of tax relief incentives in regard to property investment. Depending on the property investment type, tax relief can come in the form of a deduction equal to the amount of investment against rental income or total income in the year of investment or over a prescribed number of years. The types of qualifying property investment include, but are not limited to, the following:

  • Parking facilities
  • Hotels
  • Hospitals
  • Nursing Homes
  • Residential Property in incentive areas (section 23 relief)
  • Qualifying Student Accommodation (Section 50 relief)

The amount of relief is typically a percentage of the total cost of a project, 80%-95%, and recapture may occur if the invested property is sold or otherwise transferred within a ten year period.

Corporate Income Tax Holiday for New Start-up Companies

Ireland provides a corporate income tax (CIT) holiday for enterprises incorporated on or after 14 October 2008 and commencing a qualifying trade or business in any year from 2009 to 2014. These companies are granted relief on: (i) their profits of the new trade; and (ii) any chargeable gains on disposals of assets used for the new trade.

Finance Bill 2015 extended this relief for a further three years to include start-up companies that commence trading in 2016, 2017 and 2018.

Subject to certain limitations, this incentive provides for a CIT holiday for an enterprise's first three years of operation. Note, however, the holiday does not apply for professional services enterprise or those engaged in land, petroleum or mineral activities.

If the total amount of annual CIT does not exceed EUR 40,000, there is a full exemption available. If the CIT is between EUR 40,000 and EUR 60,000, then marginal relief is given. The amount of this relief is also limited by the employers’ Pay Related Social Insurance (PRSI) (max EUR 5,000 per employee up to EUR 40,000 total) paid in the relevant accounting period. If the PRSI exceeds the corporation tax, the excess may be carried forward and offset against future corporation tax liabilities after the three-year exemption period expires. Enterprises with annual CIT payable over EUR 60,000 are not eligible for relief.

CIT payable on passive income (25% rate) and active income (12.5% rate) from acquired businesses is included in determining total CIT payable and eligibility for full or marginal relief, but is not included when determining the actual amount of applicable relief. The amount of applicable relief is the lesser of qualifying PRSI paid, or the amount of CIT payable @ 12.5% on new trade or business.

For enterprises with CIT payable less than or equal to EUR 40,000, the amount of relief is calculated as the lesser of:

  • CIT Relief = Qualifying CIT payable @ 12.5%; or
  • CIT Relief = PRSI Contribution up to EUR 40,000 (EUR 5,000 per employee)

The marginal relief for enterprises with CIT payable of greater than EUR 40,000 up to EUR 60,000 is calculated as the lesser of:

  • Marginal CIT Relief = Qualifying CIT Payable @ 12.5% - (3 x (Qualifying CIT Payable @ 12.5% - EUR 40,000); or
  • CIT Relief = PRSI Contribution up to EUR 40,000 (EUR 5,000 per employee)

Foreign Investment/Expansion Related Incentives

Additional Foreign Tax Credit on Dividends

Ireland provides for an additional tax credit on dividends received by an Irish holding company from a European Union (EU) or European Economic Area (EEA) subsidiary. The amount of additional credit is the lower of the Irish and foreign nominal tax rates less the standard foreign tax credit, which is based on tax effectively paid.

Employee Foreign Earnings Deduction

To promote expansion of Irish enterprises into emerging markets, Ireland provides for a foreign earnings deduction for individuals who spend 60 or more qualifying days per year carrying out duties of office or employment in emerging markets.

A qualifying day is a whole day on or after 1 January 2012 that is one of at least 4 consecutive days devoted substantially to carrying out the duties of the relevant employment. Weekends and holidays are generally included.

The deduction applied for the tax years 2012, 2013 and 2014. Qualifying countries include the BRICS countries of Brazil, Russia, India, China and South Africa. Since 2013, time spent in Algeria, Democratic Republic of Congo, Egypt, Ghana, Kenya, Nigeria, Senegal, and Tanzania also qualify.

The maximum deduction is the lesser of EUR 35,000 or a specified deduction calculated as follows:

Deduction = Qualifying Days in Emerging Country / Number of Days of Relevant Employment in the Year X Total Income from Relevant Employment in the Year

Grants

Enterprise Ireland (EI) and the Industrial Development Agency (IDA), with the IDA focused primarily on foreign direct investment.

Ireland provides grants for capital expenditure for a number of various industries and activities. Qualifying expenditure may include:

  • Machinery and equipment
  • Industrial premises
  • Research & Development
  • Training of employees
  • Creation of employment
  • Rent subsidies
  • Exporting of products
  • Provision of services to overseas customers

The main government agencies responsible for grants are Enterprise Ireland (EI) and the Industrial Development Agency (IDA), with the IDA focused primarily on foreign direct investment. Grants are distributed when the relevant expenditure is incurred.

The Irish Collective Asset Management Vehicle (ICAV)

The ICAV is specifically intended for investment funds. It is not subject to the legislation governing other types of companies, which eliminates the need to comply with other requirements under the Companies Acts. The ICAV also broadens the range of structures available to investment managers and promoters establishing funds in Ireland.

A significant advantage is the ability of this structure to "check-the-box" (a tax transparent election) for US tax purposes—whereas an Irish plc is not permitted this election. The ICAV also qualifies for the tax exemptions that apply to Irish regulated funds.