As your business expands globally you want to create the most efficient and competitive structure possible. A holding company is an important part of that structure and requires examination of local tax laws, including any reductions in local tax for holding companies. And should allow for maximization of profits earned by the business. Holding companies can be located anywhere in the world, regardless of where your business operations or your target markets are located. Determining your business needs first is essential. For example, will any business operations take place in the same jurisdiction? Will there be a pool of talented or skilled workers? Identify the country where the largest market for your products or services is located, then determine whether there is a Double Tax Treaty between that country and the one you are considering as a possible holding company location. A strong treaty network often results greater efficiencies.
Ireland had a number of boom years followed by a decline in the number of new companies locating there. Ireland is now making changes to lure companies back with tax incentives and development programs, making it, a very attractive location for a holding company. Apple and other high technologies companies included Ireland in their global structures, Apple has actually had an Irish presence for the last 30 years and keeps a significant amount of its profits in an Irish subsidiary.
One of the most attractive aspects of choosing Ireland for your holding company is that it is an onshore EU jurisdiction with an extensive Double Tax Treaty network. The following is a brief summary of what Ireland offers:
A Corporate Income Tax rate of 12.5% on trading profits, compared to 30% in other EU jurisdictions and 25% on passive income. Dividends received from foreign subsidiaries, located in the EU or a country with which Ireland has a Double Tax Treaty, are taxed at 12.5%. Ireland does not have a “participation exemption,” but does grant foreign tax credits that can reduce or eliminate tax on dividends; minimum 5% shareholding is required to receive any foreign tax credits. The Foreign tax credits granted are quite flexible and can be applied to different dividend streams. Any unused tax credits can be carried forward indefinitely. Gains from the sale or other disposal of shares, and potentially other assets in a subsidiary are exempt from capital gains tax, provided the parent holding company holds owns at least a 5% equity interest in the subsidiary. This equity interest can be held directly or indirectly and must be held for at least a twelve month period before qualifying for the tax exemption.
Withholding taxes are levied at 20%, but the existence of a Double Tax Treaty will reduce the withholding rate to between zero and 15%. Ireland has a general anti-avoidance provision which can result in the re-characterization of transactions that have no de facto commercial purpose.
There are other factors that make Ireland a good choice for your holding company. It has a talented, well-educated pool of workers, it is one of the few English speaking countries in the EU, a holding company can be formed in just a few days and it has a well-established financial infrastructure.