FREQUENTLY ASKED BUSINESS QUESTION
I currently own a small company in Northern Ireland and have recently opened a new office in the Republic of Ireland as part of my existing NI company. Can you explain if I have any current tax obligations in the Republic of Ireland and should I incorporate a new company there at a later date?
A company established in Northern Ireland will generally pay UK corporate tax on its worldwide profits. When expanding into the Republic of Ireland, you will also be required to comply with tax obligations in that jurisdiction. However, as there is a double tax treaty between the UK and Ireland, double tax relief would be available in the UK for any Irish tax suffered. The current UK corporate tax rate is 19% and the current Irish corporate tax rate is 12.5%.
The liability to corporation tax in the Republic of Ireland will usually be determined by reference to whether your NI business has established a ‘Permanent Establishment’ there.
Operating a Permanent Establishment in Ireland
Generally, a company will have a permanent establishment in another jurisdiction if it operates (wholly or partly) through a ‘fixed place of business’ in that territory. A fixed place of business can be an office or branch, or even an agent in the territory acting habitually on the company’s behalf. However, they must not be acting in an independent capacity in the ordinary course of their own business.
It is important to note that a business would not be treated as having a permanent establishment if the activities carried out are of a preparatory or auxiliary character e.g. storage, display, delivery operations, or collecting information, and are not part of a fragmented business operation.
When operating a permanent establishment in the Republic of Ireland, it’s important to remember the following things:
- Assuming you have a fixed place of business in the Republic of Ireland, you would have an obligation to register for corporate tax with the Irish Tax Authorities. In addition to this, consideration needs to be given to Irish PAYE and VAT obligations.
- PAYE obligations: As you will have staff carrying out duties at the permanent establishment, your business would automatically be required to also register for PAYE.
- VAT obligations: If the company turnover exceeds €37,500 for the supply of services, or, €75,000 for the supply of goods, it is important to be aware that this is likely to trigger a registration requirement in the Republic of Ireland.
- The company will be taxed in the Republic of Ireland on the profits attributable to the permanent establishment. If a loss arises, this would be carried forward and offset against future permanent establishment profits. The NI business would pay tax on worldwide profits in the UK and double tax relief claimed for any tax paid in the Republic of Ireland.
Appointing a Director in a Permanent Establishment
There is a requirement for Irish companies to have at least one director as a resident in a member state of the European Economic Area (EEA). Following Brexit on Friday 1st January 2021, Irish companies with Northern Irish resident directors would not be able to fulfil this condition. However, there are three potential solutions to overcome this:
- Appoint an EEA Director
- Consider putting a bond in place to the value of €25,000
- Consider if you could avail of the real and continuous link exemption (subject to conditions)
Here to Help
When considering the future growth and expansion of your business, both the commercial and tax factors should be considered. There are many similarities between having a standalone company and a subsidiary from a corporate perspective. However, forming a new Irish entity as a subsidiary or as part of a wider group may facilitate better tax planning opportunities for you and your business as it grows. It is essential that adequate planning advice is obtained in respect to incorporating the Irish branch of your NI business into an Irish company.
At a later date, should you wish to formalise your presence in the Republic of Ireland you may wish to consider incorporating the permanent establishment (branch) into a limited company. There would be several key areas for consideration. For example, should you operate through a standalone Irish entity or as a subsidiary as part of your existing NI company to form a group of companies, tax registrations, tax exposure on the incorporation of the branch, available tax reliefs, CRO obligations, etc. will need to be reviewed.
When considering any changes to your business structure, it is important that you reach out to your trusted advisor to ensure that all factors have been considered and you are not left exposed to any additional costs or tax charges.
As always, the team at PKF-FPM are here to help with all your finance and tax queries. For more information and assistance on operating a permanent establishment in the Republic of Ireland, please contact our Tax Team.