What are the tax benefits for businesses in Ireland?

Last updated: 22 April 2024 Views: 2940
What are the tax benefits for businesses in Ireland

Where Luxembourg once ruled the roost, Ireland has become an increasingly attractive option for businesses looking to gain a foothold in Europe. From startups to major international corporations, companies are benefiting from a wealth of business-positive policies, as well as Ireland’s strong infrastructure and natural beauty.

One of the key factors for any business is taxation, and how much of their earnings they are able to keep, distribute and reinvest. While the idea of a ‘tax haven’ is seen as outdated and disparaging, Ireland does offer a wealth of financial support for businesses, and is an ideal place for any entrepreneur to start up or expand.

Corporate tax

Corporate tax (sometimes known as corporation tax) is one of the most appealing factors for businesses when choosing a startup location. While each country has a flat rate of corporate tax that is paid on your company’s profits, there are often deductions, subsidies and loopholes which can lower the effective corporate tax rate.

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Ireland has a corporate tax rate of just 12.5%, one of the lowest stated corporate tax rates in the world. The neighbouring United Kingdom - itself considered a startup and business friendly country - has a rate of 19%, while the United States has a rate of 21%. This alone means that businesses in Ireland retain more of their profits than in most other countries.

Added to this however are deductions for certain kinds of income. Under the Knowledge Development Box (KDB) scheme, Irish businesses can benefit from a corporate tax rate of just 6.25% for revenue which results from a company’s qualifying patents or intellectual property (IP). This has made Ireland something of a mecca for tech businesses, with companies including Apple, Google and Microsoft all basing their European headquarters in the country. The relief is in place until 31st December 2022, but may be extended further.

R&D tax credits

As well as the lower corporate tax rate for profits resulting from patents and IP, businesses in Ireland can also benefit from some world-leading research and development (R&D) tax credits. Qualifying companies will receive not only a tax credit of 25% on R&D expenditure and activities, but also a standard 12.5% revenue deduction for R&D expenditure, resulting in an effective corporate tax benefit of 37.5%.

On top of this, businesses in Ireland can also receive a second R&D tax credit on R&D related construction projects, such as the building or refurbishment of buildings designated for R&D (e.g. a laboratory). As long as at least 35% of the building is used for qualifying R&D activities, the business is eligible for a credit equal to 25% of the proportion of expenditure on the building that relates to the area being used for R&D.

Employees in R&D positions also stand to benefit from Irish tax laws. Companies have the option to surrender part of their R&D credit on corporate tax to instead reduce the effective rate of income tax for ‘key employees’, half of whose work should constitute R&D. This generally takes them from a rate above 40% to a rate of just 23% - a fantastic way to both attract and reward talented researchers and development staff.

Finally, there may be even better news for startups and small businesses on the horizon. Legislation is currently in the works to offer an elevated R&D tax credit of 30% for micro and small companies (fewer than 50 employees and turnover under 10 million euros). While this has not yet been passed, it should make the Irish business landscape even more attractive and competitive.

Grants and funding

Ireland is extremely welcoming to foreign investment, and offers a number of grants and funding schemes through various government bodies. Chief among these is the Industrial Development Agency (IDA), which provides funding and incentives for businesses, as well as forging connections and providing information to foreign investors.

Depending on the size and situation of your company, the IDA can provide financial support towards R&D, training, employment creation and improving operational effectiveness. Through long-term partnerships with the IDA, foreign investors can benefit from introductions to key stakeholders, advice on how to best take advantage of Irish tax laws and incentives, assistance with marketing, and advice on how to navigate the country’s permit and visa systems.

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Away from the IDA, there are a number of industry-specific investment funds and other finance sources. Examples include the Irish Strategic Investment Fund, the Disruptive Technologies Innovation Fund, and the Strategic Banking Corporation of Ireland. Startups and entrepreneurs may be interested in Microfinance Ireland, which provides small business loans, and the Employment Investment Incentive, which provides tax relief to investors in startups that create employment.

Employment incentives

As well as the ability to reduce the tax burden on key employees through the application of R&D credits, Irish companies can benefit from tax allowances for employees. The Special Assignee Relief Programme (SARP) provides income tax relief for eligible people who travel from abroad to work in Ireland. The employer does not even have to be incorporated in Ireland, merely in a country with which Ireland has a double taxation agreement.

Employees under this scheme can receive an income tax exemption of 30% of their income in excess of 75,000 euros. Their employer can also cover the cost of flights to their home country and any school fees they incur on a tax-free basis, should they so wish. Alongside this scheme, the Foreign Earnings Deduction scheme provides an additional deduction for residents of Ireland who travel to work for your company abroad, up to a maximum of 35,000 euros.

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Ireland's reputation as a business destination is growing, and little wonder. With an economy built to nurture small businesses and support large ones, strong national infrastructure, a high standard of living and a prime position in Europe, Ireland is an ideal destination for startup founders and corporations alike.

To learn more about starting a business in Ireland, download our guide using the form below. Alternatively, get in touch with us today via our contact page to discuss your startup or expansion project, and learn how we can help you succeed.

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