You must have heard people talking about Irish companies; they were in the headlines for some time for their involvement in Google and Apple’s complicated tax avoidance schemes in the EU. These companies legally took advantage of the Irish tax system, as well as the peculiarities of the complex corporate law there, to effectively reduce their tax burden in Europe.
Although models such as the “Double Irish with Dutch Sandwich” (a reference to the tax system in both countries) have been an appealing option in the past, average-sized companies hardly used them when the chips were down. Establishing a company in Ireland wasn’t easy, and the costs were too high.
But times change. The “Double Irish with Dutch Sandwich” has nearly reached its expiration date; companies that have built the necessary structures in time only have until 2019 to take advantage of them.
Of course, Ireland won’t take this lying down. Given the upcoming exit of its neighbour from the EU, the Emerald Isle sees a lot of potential in usurping the role of Great Britain in company creation.
Brexit could result in the swift disappearance of all the advantages currently enjoyed by British limited companies, including the generous tax system for small business owners, which lets them remove VAT from their invoices as long as their turnover is below €106,000 a year (we’ll soon discuss the opportunities in the UK for establishing companies; sign up here and don’t miss a thing).
Here you have a short video introduction by Christoph:
Why Irish limited companies could soon be superior to those in the UK
It seems that Ireland wants to make the most of the potential gaps left by the UK’s exit from the EU, and is giving more and more thought to small businesses. The most recent reform to Irish corporate law is a clear step in this direction.
Britain has hinted at applying a corporate tax of 10% (a manoeuvre that is most likely a tool to put pressure on the EU during negotiations), but is still an attractive option, although now for other purposes.
Limited companies that are already on the commercial register anywhere in the EU, will still exist after Brexit, with full legal capacity.
Of course, the UK seems to want to eliminate all kinds of anonymity in company creation with its transparency register. This involves building a register of authorised persons that renders any kind of trusteeship structure useless on British soil. It will be almost impossible to act anonymously with an English limited company. The only option will be to operate through shell companies with a share under 25%. Only these kinds of shares will be exempt from the register.
It’s no surprise that Ireland has seen its chance and is hoping to overtake the UK as the place to establish a limited company. As long as Ireland is a member of the EU, Irish companies can still appear on the commercial register of any country in the union, with their legal capacity intact (and, naturally, paying taxes in the country where they’re managed from).
The reform to corporate law in Ireland has also made the creation of subsidiaries much more attractive, thanks to a low tax burden of just 12.5%.
For digital nomads and other entrepreneurs who aren’t tied down to a physical place, Ireland could be a great alternative, since the reform has reduced the establishment and administration costs of Irish limited companies by an enormous amount.
Not having a fixed place of residence could pose one problem: under Article 137 of the Companies Act, the manager of an Irish company must have their residence in the European Economic Area. But in any case, it’s normally a given that people without a place of residence continue to have one in their country of birth (which is the deciding factor here). If this doesn’t work, you’re forced to buy a bond for approximately €2,000 to cover liability risks.
Irish limited companies in more detail
With this latest reform, Ireland is moving towards the English laws of the good old days. The regulations are easy to follow; allowing the Irish authorities 10 minutes a year is usually enough.
Among the most important reforms is the reduction of the number of managers necessary to lead an Irish limited company from two to one. Unlike in the UK, there is no Register of Authorised Economic Operators, so you can remain anonymous if you use trusteeships to create an Irish limited company.
As with British limited companies, there is no minimum sum of money that can be brought into a private limited company (a company with limited responsibility). This is a legal entity that can act legally everywhere and doesn’t require a minimum contribution towards its creation.
Irish limited companies, which pay corporate tax in Ireland, enjoy one of the lowest rates in the EU: just 12.5%. In fact, small business owners enjoy fairly generous regulations in Ireland. The advantages of such regulations include the chance to obtain an Irish tax identification number, without having to deduct the 23% VAT, as long as turnover isn’t above €37,500 euros for service companies and €75,000 for traders.
Audits are only compulsory for big companies with more than 50 employees, a final balance above €3.65m, or an annual turnover of more than €7.3m. Smaller companies are only subject to audits if the annual balance sheet is delivered far past the deadline.
Accounts must be kept up to date and integrated into a sole annual balance sheet. Moreover, an opening balance sheet must be presented after the establishment of an Irish limited company. In addition, an annual return must be delivered six months after establishment. This simply outlines the vital signs of the limited company, including information on its current owners and purpose. Having a tax advisor in Ireland will help you keep bureaucracy to a minimum.
Together with the reasonable start-up costs currently in place (approximately €800) and total anonymity (€150 for the use of a trustee), all of this makes Ireland an interesting option for small-scale or non-domiciled freelancers who want to minimise risks with a limited company.
Finally, don’t forget that Ireland is at the forefront of new financial technologies, which simplify bank transactions and payments a great deal, especially for small businesses. For example, Irish limited companies can easily get hold of a SEPA business account with Paywithfire, a highly recommended service provider. Irish limited companies can also contract and use services from Paypal, Stripe, and standard bank accounts with no complications.
Costs of an Irish limited company
You can set up a limited company in Ireland at a reasonable price through Tax Free Today’s associated offices. Of course, it’s even more cost-effective to go to Ireland and carry out the process directly.
To pay taxes in Ireland (an ideal option for digital nomads, larger businesses, and holding companies), the cost of establishing a company is approximately €800 euros, which includes a registered office (€295), secretary, and all written reminders (€165 a year). For an extra €150, you can contract a trustee to make the process anonymous.
Ireland has competition with many other jurisdictions inside and outside the EU. However, its legal characteristics also make it an attractive option for small business owners who still have residence elsewhere. Your tax burden won’t be reduced if you choose not to invest in a structure that makes the Irish company credible (with a manager, employees, office, etc.), but you can still take advantage of some very beneficial company laws, such as anonymity and limited responsibility.
Ireland is an especially good choice for digital nomads and people without a fixed residence who need a company with a good reputation, as well as collection and payment options within the EU. VAT won’t be deducted up to a turnover of €37,500, and you’ll only pay an easily-reducible 12.5% tax on profits, since there are ample opportunities for deducting expenses.
This allows Ireland to compete with the other countries that will shortly be covered by Tax Free Today, such as Cyprus (much more expensive), Estonia (which has a peculiar tax system), and several other States, especially those in Eastern Europe.
Nevertheless, its numerous double taxation agreements and perks for holding companies make Ireland a good option for parent companies and models for (legal) tax avoidance.