Irish Corp Tax Savings
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If you do your research, you will find information showing that one of the main reasons for forming an Irish corporation that Ireland has one of the lowest corporate tax rates in the world.
The Republic of Ireland has two corporate tax rates:
• 12.5% for trading income (e.g. operating a business)
• 25% for non-trading income (e.g. passive income such as developing land & oil exploration)
Compare these countries:
|Country||Corporate Tax Rate|
|United States||35% (to 15%)|
|Canada||31% (to 16%) (federal + provincial)|
|Ireland||12.5% (active, trading income)|
So, we can see that Ireland’s corporate tax rates are less than half of those in many other countries. That is a main factor in the attraction of many international companies forming Irish corporations.
Research and Development Tax Credit
In addition, Ireland has research and development (R&D) Tax Credit program. Qualified R&D costs earn a 25% tax credit that offset corporate taxes plus and additional tax deduction at 12.5%. The reason is to promote foreign and local companies to perform R&D in Ireland.
How Big Companies Cut Tax in Ireland
Tim Cook, CEO of Apple Corporation, one of the most valuable companies in the world as of this writing formed more than one offshore company subsidiary. He reported to the US Senate hearing on tax, two of its Irish subsidiaries pay about 2% in tax. Apple’s tax policy chief, Phillip Bullock confirmed the two Irish subsidiaries – Apple Operations Europe and Apple Sales International – paid around 2% in tax.
Mr. Cook stated that funds earned outside of the US were “taxed in the local market,” and then transferred to Apple Operations International, which is filed in Ireland but managed and controlled in the USA. Because AOI does not qualify to be an Irish resident under Irish tax law, which applies a “management and control” test for residence, it does not pay Irish taxes. As the Senate report stated, “AOI is incorporated in Ireland; thus, under US law, it is not tax resident in the US. AOI is also not tax resident in Ireland because it does not meet the fact-specific residency requirements of Irish law.”
One of the Irish subsidiaries of Apple that has an address in the city of Cork got paid $29.9 billion in dividends from Apple-affiliated offshore companies from 2009 to 2012. This accounted for 30% of Apple’s global profits. Apple received the benefit of the difference between Irish and US tax residency laws.
The Apple CEO said his company paid $6 billion in US federal taxes in 2012. It has created or supports at least 600,000 jobs in the US. Many world-changing inventions were introduced by Apple, including the Mac, iPhone, iPad, iTunes, App Store, etc.
Several other international companies, such as Facebook and Google, have located their European headquarters in the Republic of Ireland to take benefit from its low corporate tax rates. It is important to get licensed tax advice from a CPA in the jurisdiction where you are required to pay taxes before using such a strategy.
“It’s all about competition,” says one low tax advocate who chose to remain anonymous. “The world is getting smaller. If the prices at Sears are too high, I’m going to Wal-Mart and vice versa. So, if the US doesn’t like it, they should lower their corporate taxes and be more competitive.”
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