A holding company in Ireland is a type of legal entity incorporated with the purpose of owning shares in other companies (subsidiaries).
The share ownership allows the holding to control the actions of the other legal entities, thus obtaining certain advantages, such as tax-related ones.
The holding company in Ireland is usually not used for trading/commercial activities, but solely for owning controlling interest in other legal entities which can be based in Ireland or abroad.
Our lawyers in Ireland list the main advantages of basing a holding company in Ireland, the incorporation process and important issues to consider regarding the taxation of the business entity.
For additional information and assistance during the incorporation process, you can reach out to our attorneys.
Holding company incorporation in Ireland
A holding company in Ireland is incorporated as one of the existing types of corporations defined in the Irish company law.
In practice, the private company limited by shares (LTD) is commonly used for the purpose of opening a holding company, as well as for many other business purposes.
Our lawyers in Ireland specializing in company formation list the main incorporation steps for the LTD below:
- Choose the business name: it is important that the chosen business name is unique and acceptable; the company can be subject to a name change post-incorporation, should the Registrar believe the name to be unacceptable;
- Choose a registered office: all companies are required to have a physical registered office in Ireland (not a post office box number); this is used for correspondence and formal legal notices from the Companies Registration Office;
- Prepare the documents: for a LTD, the needed documents are the Articles of Association; this business form does not require a Memorandum of Association.
- Register the business: all companies are duly registered with the Companies Registration Office; a special form is filled in for this purpose.
The registration form offers information about the company (name, registered address) and its shareholding structure.
The LTD can have between 1 and 149 members and at least 1 director.
All companies registered under the Companies Act 2014 are required to have a company secretary.
An LTD with only one director is required to have a separate secretary.
The secretary and the director(s) are the both considered the officers of the company.
In a private company limited by shares, the liability of the members is limited to the amount unpaid on the shares they own.
The LTD used as a holding company in Ireland is a separate legal entity from its founders. It can enter into agreements in its own name, sue and be sued.
Find out more about the holding company from our video:
Holding company tax residence
An important issue to take into account when incorporating a holding company, or otherwise wishing to engage in holding activities in Ireland, is the tax residence matter.
A company incorporated in Ireland is considered a tax resident. this means that a holding company registered as per the steps described above is a recognized tax resident.
When a company incorporated in Ireland is regarded as a tax resident in another jurisdiction (under a double taxation agreement), then it will no longer be considered an Irish tax resident.
Moreover, a company is considered an Irish tax resident if it is managed and controlled in Ireland, regardless of the territory in which it is incorporated.
This means that a holding company can be treated as an Irish tax resident even when not incorporated in the country.
In practice, different rules apply to a company’s tax residence in Ireland depending when it was incorporated, before or after January 1st 2015.
The holding company will be considered a tax resident in the country if it was incorporated in Ireland on or after January 1st 2015, unless treated as a tax resident elsewhere, as previously mentioned.
For companies formed before this date, a transitional period applied, which has now ceased.
At the moment, the rule for a company that is not incorporated in Ireland is that the company is considered a tax resident if it is managed and controlled in the country.
The general central management control test analyses the following:
- where the company’s policy is being created and decided;
- where the investment decisions are made;
- where the main contracts are concluded;
- the location of the company’s head office;
- the location where the majority of the company’s directors reside.
Other important questions many be included in this analysis to determine whether or not a company is a tax resident in Ireland.
Holding company taxation in Ireland
Usually, Irish companies must pay a corporate income tax of:
- 12, 5% on profits of trading income or
- 25% on profits of non-trading income;
- 25% or 0% withholding tax on dividends, 20%, 33% or 0% withholding tax on interests and royalties.
The VAT rates to which an Irish holding company is subject to are the following:
- 23% standard rate;
- 0%, 4.8%, 5.5%, 9% or 13.5% reduced rates.
VAT registration is mandatory for supplies of goods when their annual turnover is equal or greater than EUR 75,000.
A lower registration threshold of EUR 37,500 per year can apply in some cases.
Other issues investors can take into account are summarized in the list below:
- The dividends received by one Irish resident company from another Irish resident company are normally exempt from Irish withholding tax.
- Only the dividends paid to non-residents are subject to the withholding tax if no treaty was signed with the country of origin.
- The dividends paid by a subsidiary which is resident in an EU or Tax treaty country and that have been already taxed at least 12, 5% corporate tax in the country of origin are not subject to the withholding tax on dividends.
- There is no capital gain tax when the Irish holding company has held minimum 5% of shares with voting rights attached of the subsidiary for more than 12 months in the previous 2 years or if the country of the subsidiary is from an EU country.
- The capital gains exceptions are also granted if the subsidiary is part of an active trading company or it is part of a group which is carrying trading activities for more than a half of the time.
Another condition to grant capital gains exemptions is when the subsidiaries are based in one of the countries which has signed a double tax treaty with Ireland.
Ireland has an extensive tax treaty network and has signed approximately 73 tax treaties with countries worldwide.
Under the controlled foreign companies regime, certain rules apply for the undistributed income that arises from non-genuine arrangements.
In addition, for accounting periods after 1 January 2022, the exemptions applicable under the regime do not apply when the controlled foreign company is a resident in a country included on the EU list of non-cooperative jurisdictions.
Non-Irish resident investors are usually exempt from Irish tax on any gains derived on the sale of listed shares in Irish companies.
The withholding tax on dividends paid to foreign companies is not charged if one of the following conditions is met:
- the parent company is resident in an EU country and at least 5% shares are owned by that company in the Irish company,
- if it’s a legal entity resident in an EU/tax treaty country which is not under the control of Irish resident,
- if the legal entity is resident anywhere but is ultimately under the control of persons who are resident in an EU/tax treaty country, or
- if it’s a publicly traded company.
The accounting requirements for a holding company can seem lighter compared to other businesses that engage in commercial activities, nonetheless, this business will need to fully comply with the reporting standards, the bookkeeping requirements, as well as the annual submissions that remain mandatory for any Irish-incorporated business. Our team of Irish accountants can tell you more about these requirements.
Our Irish lawyers can help companies comply with the tax regulations available in the country.
Investors who incorporate a holding company in Ireland benefit from a business-friendly regime, along with a low tax system that is also straightforward.
In addition to the low-tax regime, holding companies in Ireland benefit from the extensive double tax treaty network, along with other advantage such as the taxation regime for foreign dividends.
General company formation issues in Ireland
As seen above, company formation in Ireland is subject to a set of mandatory steps and requirements.
As the registered office needs to be based in the country, investors can also be presented with the option of using a virtual office for a holding company in Ireland.
What this means is that the company will have a registered address at a pre-determined address in Ireland, all whilst not being mandatorily at that address at all times.
Given the nature of the holding company’s activities, the team can work from a different location, while the incorporation process for the company will be in compliance with the Irish laws.
A virtual office in Ireland is typically located in a modern office building and in a central location in an Irish city, meaning that the business will have the advantage of retaining a professional business image.
Under a virtual office service, the company’s founders and personnel will have access (upon request) to dedicated office space and other solutions for business (such as video conferencing meeting rooms and others).
An increased flexibility for the entire team, as well as reduced business operating costs are other common advantages of using a virtual office for a company, or holding company in Ireland.
These business solutions are usually decided upon during the early company formation stages, as the address of the virtual office will need to be used for company creation.
Nonetheless, our team can also assist investors who wish to change the registered address of the holding company once the business has been incorporated or some time afterwards.
Our team or lawyers in Ireland has highlighted the main tax advantages for holding companies in the country.
Other non-tax factors that can be taken into account when opening a holding company in Ireland relate to the fact that the country is an English-speaking one, and access to a pool of qualified employees.
Investors will find that the professional and administrative services provided for in Ireland can also constitute an important advantage for basing a company in this jurisdiction.
The favorable combination of both tax and non-tax advantages for holding company creation in Ireland makes the country a suitable choice for investors.
For more details about the holding companies in Ireland, please contact our Irish lawyers.