An Irish tax
resident company is liable to Irish corporation tax on trading profits at
12.5%. Therefore, it follows, that if you wish the company’s trading
profits to be liable to Irish corporation tax at the 12.5% corporation tax rate
then you must ensure the company is always considered an Irish tax resident
company. It is possible for a company with overseas operations to be
Irish tax resident but practically it may make the conditions necessary for
Irish tax residency more difficult to fulfil especially if the directors are
non-Irish tax resident.
Companies incorporated in Ireland will be tax resident in Ireland unless regarded as resident in a territory other than Ireland for the purposes of a tax treaty.
You might consider the following important points:
The place of
incorporation of the company is always a factor in deciding tax
residency. However it is considered secondary compared to other
issues. The guiding principle is “where the central management and
control actually abides” e.g. where the directors hold their meetings and
whether real decisions affecting the company are taken at those meetings.
The concept of central management and control is directed at the highest level of control in the company’s business and goes beyond the day to day control needed to carry out normal business transactions. The board of directors would have the responsibility for exercising the central management and control of the company at the highest level and the place where the level of control is exercised is at the directors’ board meetings. Therefore the location of these meetings is the key factor in deciding where the management and control of the company is exercised and therefore where the company is resident. Therefore please note the following very carefully:
- Board meetings should be held in Ireland and the board which meets must have the highest level of control over the company. No meetings should be held outside Ireland.
- At least 2 – 4 meetings should be held annually.
- The AGM should be held in Ireland (i.e. no meetings of the members of the company should occur outside Ireland).
- The board members should attend in person.
- Management and control should be exercised at these meetings. Major policy decisions in relation to the business should be taken at the board meetings e.g. approval of contracts, declaration of dividends, appointment of auditors. It is obviously crucial that these decisions are backed up by comprehensive minutes.
- All of the board of directors should ideally be Irish tax resident.
The following factors are also relevant (but do not carry as much weight as the above):
- Contracts should be, where possible, negotiated in Ireland.
- The profits should be realised in Ireland.
- The Head Office should be in Ireland.
- The preparation, examination and audit of the company records should take place in Ireland.
The following should be located in Ireland:
- The books and records of the business
- The minutes.
- The company seal.
- The share register.
- The bank accounts.
A combination of all these factors will establish the tax residency of a company over time. However it is important that the pattern of behaviour is maintained consistently going into the future. However as you can see directors may at least need to visit Ireland a few times a year to attend board meetings which should in turn help to establish the Irish tax residency of a company.
Tax residency should apply for an operational activity in Ireland and the directors reside here.