Ireland is a popular jurisdiction for the incorporation of holding companies. Amongst the attractive facilities it offers are:

• A large number of double taxation treaties
• EU member
• The lowest rate of corporate tax in the EU
• No controlled foreign corporation rules for trading companies

The Irish tax system has undergone many changes in recent years, with the result that the country has become a popular jurisdiction for the formation of holding companies. Ireland is an EU member and has a fairly extensive network of double taxation treaties, both of which increase its attractiveness.

The Irish holding company

An Irish holding company is a company incorporated in Ireland, by a parent company, for the purpose of holding shares in subsidiaries incorporated in countries in which the Group is engaged in business activities. The holding company will receive the dividends paid by those subsidiaries and use them to declare a dividend to the ultimate parent.

In deciding where to establish a holding company, the parent company will, so far as taxation is concerned, take into account four main factors and in all cases Ireland compares well with some of the better known jurisdictions such as the United Kingdom and the Netherlands.

Dividends received from subsidiaries

• If the subsidiary is incorporated in a country with which Ireland has a double taxation treaty it will normally suffer a reduced or nil rate of withholding tax in the country from which it is paid.
• If the subsidiary is incorporated in an EU country and, if the EU parent / subsidiary Directive applies, dividends paid to an Irish holding company will not suffer deduction for withholding tax in the country from which the dividend is paid. A number of EU countries have, however, enacted anti-abuse legislation aimed at European holding companies controlled by non-EU investors.

Corporate tax in Ireland

Foreign dividends received by Irish companies are subject to corporation tax in Ireland and in this respect the incentives are less attractive than in countries such as the Netherlands, the U.K. and Denmark. Where the Irish company owns at least 5% of the ordinary share capital of the subsidiary however, Ireland gives, in respect of dividends received from that subsidiary, tax credit for both foreign withholding taxes paid on such dividends and for the underlying corporate taxes paid by the subsidiary in its home country.

Dividends paid to foreign parent companies

Ireland does not, as a general rule, impose withholding taxes on dividends paid to a foreign parent company located in another EU State or in a country with which Ireland has a double taxation treaty. This exemption is also granted where the parent company is not resident in such a country, but is ultimately controlled by persons who are so resident.

Capital gains tax

Providing a number of conditions are met, capital gains on the disposal of shares in the subsidiary by the holding company are exempt from capital gains tax in Ireland. Briefly, these conditions are:

• The parent company must have held, directly or indirectly, at least 5% of the issued capital of the subsidiary for a continuous period of at least 12 months during the previous 2 years
• The subsidiary must, at the time of the disposal, be tax resident in an EU member State (including Ireland) or in a country with which Ireland has a double taxation agreement.
• The subsidiary must carry on a trade or be part of a trading group