Holding Company Location (Ireland)

What is Ireland’s Holding Company regime? What are the benefits?

1. Ireland provides a tax exemption on Capital Gains where an Irish Holding company disposes of shares in another company (the Investee company) provided the following criteria are met:-

The Holding company has held, directly or indirectly for a period of 12 months, ending in the previous 24 months, a minimum holding of 5% of shares in the Investee company;

The shares disposed must be in a company which, at the date of disposal, (but not necessarily at any other time), is resident in a member state of the EU, or a state with which Ireland has a DTA;

The Investee company must be primarily a trading company, or else the company making the disposal together with all of its “5% and subsidiaries” should be primarily a trading group;

The shares must not derive the greater part of their value from land or mineral rights in the state.

2. Ireland provides credit pooling for foreign dividends

Ireland operates a “credit” system in respect of dividends received from foreign subsidiaries. As such a credit is allowed for the foreign tax suffered attributable to the dividend. However, where credit attributable to that dividend exceeded the Irish tax payable in relation to that dividend (where the underlying tax rate is greater than the Irish tax rate applicable of 25%) the excess credit was lost.

However, under new legislation these excess credits will be allowed to be offset against Irish tax payable on any other foreign dividends received in the same accounting period and any balances to be carried forward and offset in subsequent years. This should ensure that with appropriate planning little or no Irish tax should arise on foreign dividends for the most case.

Where does Ireland have advantage over other holding company jurisdictions?

Ireland has a distinct advantage over other holding company jurisdictions with specific advantages in tax efficient investment into China, Japan and Korea

1. China

Exit & reinvestment strategy

• Ireland-China treaty – provides exclusive taxing rights on capital gains given to Ireland (Article 13)
• Disposal is exempt from Irish CGT

• Dividends are taxable with credit in Ireland
• Use of on-shore pooling to manage foreign tax credits if China Opco has tax holiday

Exit & reinvestment strategy

• Ireland-Japan treaty - taxing rights on capital gains given to Ireland
• Disposal exempt from Irish CGT
• Direct investment would result in Japanese tax on disposal of shares

• Dividends taxable with credit
• No withholding tax on onward dividends

Exit & reinvestment strategy

• Ireland-Korea treaty - taxing rights on capital gains given to Ireland
• Disposal exempt from Irish CGT
• Direct investment would result in Korean tax on disposal of shares

• Dividends taxable with credit
• No withholding tax on onward dividends

IFG manages a number of Irish holding companies where clients have established a holding company in Ireland and these holding companies are used to invest in a variety of jurisdictions with China and Japan being most common.

IFG will actively assist with the management and control of this Irish holding company and assist with the commercial aspects pertinent to such a structure.

Summary

The Client obtains a tax efficient managed vehicle which provides access to the benefits of Irelands Holding Company regime with particular benefit in jurisdictions such as China, Japan and Korea.

IFG does not provide taxation or legal advice. The information and expression of opinion expressed in this briefing note are not intended to be a comprehensive study or to provide taxation or legal advice. Specific advice concerning individual situations should be taken and IFG can provide introductions to advisers who specialise in this area.