Tax Regime in Ireland - Essay Example

TAXATION ISSUES WITH THE INCORPORATION OF A BUSINESS IN IRELAND Establishing and conducting business is one of the most challenging activities that contribute to well being of the economic engine. In doing so, businesses have to ensure that they minimize all costs that are possible in an effort to ensure that the net profit is maximized. One of the areas that companies focus while cutting costs and expenditure is taxation. Companies are on therefore on the lookout for countries that offer them the lowest tax and where the procedures involved in taxation are hassle free. On finding a requisite location, companies incorporate their business with that country or region in an effort to obtain better benefits from taxation. Countries that offer better prospects in terms of incorporating a business and taxation have benefited immensely from such policies as it has encouraged several companies to set up their headquarters in such countries that includes popular names such as Switzerland, Luxembourg, Bermuda and Cyprus. However, within European nations, Ireland has emerged as one of the nations that has become a favored destination for incorporating a new business. In fact, it occupies a place among the top three countries in the European tax system on the basis of the attractiveness of their domestic tax regimes (Michael Leonard Walden, Peg Thoms, 2007). Ireland has been rated highly for a number of reasons that includes a proven consistency in the ease with which tax legislation can be interpreted by businesses. Secondly, the country is known to have a stable outlook with regards to tax reforms that has helped businesses as it does not require them to make frequent changes to their policies. In the midst of all these benefits, Ireland levies a very low tax rate in comparison to other European nations. KPMG, one of the big 4 consulting firms has compiled more than 450 interviews of tax practitioners who provide tax consulting services to several companies across the world. From the analysis of their responses, it has come to light that a vast majority of the respondents perceived Ireland’s tax regime to be very attractive in addition to other European countries. Many have substantiated this with the higher growth rate in the country owing to similar policies in place (Luigi Bernardi, Paola Profeta, Vito Tanzi, 2004). Several respondents believed that the key components of Ireland’s domestic systems were quite attractive and beneficial to conducting a business which is evident from the high rating of 89% given to it among a compiled list of all European nations that puts it at second position in terms of overall tax attractiveness. Additionally, it has also been acknowledged by tax consultants that a country with an unattractive tax policy is an inconvenience to a business to come extent that put the company at a relative competitive disadvantage when it was exposed to competition from companies better protected by a favorable tax policy in other countries with better tax policies. Additionally, it is generally believed that lesser taxation helps companies compete with foreign companies in a better way. However, many agree that reducing taxes alone will not help make a company more competitive. According to Sue Bonney, the chief of Tax for KPMG in the European domain, governments across the globe have looked at tax as a tool to encourage investments within their countries. Additionally, there is a need for a qualified workforce and good resources in order to help the company become more competitive. As such, due consideration needs to be given to examine whether the company has any internal problems and deficiencies, which must first be tackled prior to undertaking any proposed incorporation of the business. Incorporation of a business in Ireland would imply that the company is controlled from there. Since the current business operates within the restaurant industry, it does not come under an ‘excepted trade’ category that entitles it to pay a mere 25% corporation tax rate., which is similar to the rate levied on an excepted business involved in activities such as construction and petroleum. However, if the company were to be trading, then it would have to pay a meager tax of 12.5% only (KMPG Slovakia, 2008). As such, it is advised to look into the prospects of registering the company as a traded entity. This also influences areas such as allowable deductions which are dependent on a company’s trading status. Owing to the lobbying by the Irish Taxation Institute, small firms and start up companies with a liability below €150,000 during the first accounting period do not have to pay any preliminary tax and only need to pay a final corporation tax liability. Registering a new company is also quite fast and can be done within a maximum period of 7 days and involves no hassles whatsoever (Stephen Morse, 2004). Ireland is further favorable for incorporating the business as it has comprehensible double taxation agreements with more then 50 countries that prevents any possibility of a business entity getting taxed twice in any of these countries. As such, the company may continue to operate several branches in any of these countries with its registration in Ireland, thereby entitling it to pay its taxes in Ireland alone. Some of the countries that have a double tax mitigation agreement with Ireland are Australia, Austria, Belgium, Bulgaria, Canada, Chile, China, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Georgia, Germany, Greece, Hungary, Iceland, India, Israel, Italy, Japan, Korea, Latvia, Lithuania, Luxembourg, Malaysia, Malta, Mexico, Macedonia, Netherlands, New Zealand, Norway, Pakistan, Poland, Portugal, Romania, Russia, Slovak, Republic Slovenia, South Africa, Spain, Sweden, Switzerland, Turkey, United Kingdom, United States, Vietnam and Zambia (Paul Egan, 2007). It would be interesting to note that Ireland became the fastest growing economy in the EU during the 1980s and there was a common push among EU members for adopting a 30% flat rate based on the RUDIG report. However, due to lack of convergence among members, there was additional pressure within member states as Ireland was charging an incredibly lower tax of 10%. Owing to pressure from fellow EU members, Ireland agreed to increase its corporate tax to 12.5%, which is still very small in comparison to the tax rates in other EU countries which are in the 25-30% margin (George Kopits, 1992). This slight increase shows seriousness on the part of the government of Ireland to preserve its corporate policy and maintain its FDI (Foreign direct investment) base. Small firms of all sectors that have incorporated in Ireland have largely benefited from a boost in their turnovers that has resulted in the resolution of all tax related disputes within the EU. As such, Ireland is a very good destination for incorporating a business where the success of the business looks highly prospective in nature for the future. REFERENCES 1. George Kopits (1992), Tax Harmonization in the European Community: Policy Issues and Analysis. International Monetary Fund. 2. Luigi Bernardi, Paola Profeta, Vito Tanzi (2004), Tax Systems and Tax Reforms in Europe. London: Routledge. 3. Stephen Morse (2004), Indices and Indicators in Development: An Unhealthy Obsession with Numbers?. New York: Earthscan. 4. Paul Egan (2007), Irish Corporate Procedures: A Guide to the Organisation and Regulation of Business in Ireland. London: Jordans. 5. Michael Leonard Walden, Peg Thoms (2007), Battleground: Business. London: Greenwood. 6. KMPG Slovakia (2008), Cyprus, Ireland and Switzerland have most attractive corporate tax regimes in Europe, finds KPMG International poll. Bratislava: KPMG Slovakia. Read More