By Business & Finance 
Since 1990, US companies have made investments of $190 billion into Ireland. Louise Kelly, taxation director, Deloitte Ireland looks at what has attracted this investment.
Most people will be familiar with Ireland’s low tax regime, and while the 12.5% rate is attractive, it is important to note that tax cannot be seen as an isolated FDI driver. Companies assess a number of competing factors when choosing a foreign investment location including labour, infrastructure, corporate tax rate and the regulatory/legal environment.
Ireland has become the dominant location for investment by companies in a number of sectors including technology, media, life sciences, banking, leasing and funds. Companies across many sectors are basing their EMEA headquarters in Ireland; for example, Ireland is often called the ‘internet capital of Europe’. Also, in the life sciences sector, we have seen an increasing number of companies seeking EU approval for their products before seeking FDA approval in the US due to the lengthy FDA approval process, and many of these companies are using Ireland as a springboard for the European launch of their product.
Because of Ireland’s history of being home to multinational companies, there is a deep pool of management talent with multinational corporation experience for companies wishing to set up operations in Ireland. Ireland has a well-educated workforce, being named as the best in the world for readily available skilled labour and second best for the most adaptable and efficient employees. Ireland has the youngest workforce in Europe and the availability of talented and flexible employees is a key attraction for companies setting up or expanding Irish operations.
While the domestic market remains small, Ireland’s proximity to continental Europe and membership of the European Union means that it is an ideal location for gaining access to the 27 countries of the EU and other countries in the EMEA region. Ireland is a five-hour flight from the US east coast, with a five-hour time difference making Ireland an ideal location from which to serve Europe.
The new Terminal 2 in Dublin Airport is of great benefit, in addition to the fact that Dublin and Shannon airports offer full US Customs and Border Protection preclearance facilities to airlines travelling to the US, which allows passengers to pre-clear all formalities for US immigration, customs and agriculture. In addition, Ireland is well-connected with an extensive rail and road structure.
In the past five years the Irish telecoms industry has invested €2.5bn in infrastructure which has supported a significant number of technology and gaming companies to set up Irish operations. This highlights the large steps which Ireland has made to transform into a technological hub, resulting in eight out of the top 10 technology companies and three of the top five gaming companies being located here.
Tax regime
The main corporation tax rate in Ireland is 12.5%. This rate is EU approved and the Irish Government is steadfastly committed to retaining the 12.5% rate. A ruling is not required to benefit from the low rate, unlike some of our competitors. However, should certainty be required, the Irish tax authorities will provide advance opinions on the availability of the 12.5% rate and other technical matters. This rate is supported by an attractive intellectual property (IP) regime, a generous research and development (R&D) tax credit regime, an extensive and expanding double taxation treaty network, as well as a wide range of domestic withholding tax exemptions.
The effective tax rate can be lower than 12.5% depending on the nature of the company’s activities in the context of eligibility for R&D tax credits, along with opportunities for IP and financing structuring. Ireland’s IP regime provides for tax depreciation of intellectual property in accordance with the accounts or over a 15-year period (whichever is shorter), and it is possible to achieve a cash tax rate of less than 12.5%. In addition, Irish legislation provides for tax exempt disposal of subsidiaries: foreign dividends generally suffer no further tax in Ireland and a tax-free exit transforms Ireland into a key holding location for holding subsidiaries.
Ireland is recognised as having a pro-business environment. Ireland’s common law legal system is generally favoured by investors over some of our competitors’ civil law regimes. The regulatory environment for funds has adapted quickly to changes at an EU and national level. Ireland has developed an effective and robust regulatory framework which enables very efficient fund and promoter approval; one of the reasons why Ireland is a world leader in the funds industry.
Ireland’s benefits
In addition to the various benefits listed above, business costs including labour, rents, services and construction are highly competitive, with costs recently returning to 2003 levels. Reductions in property costs have been pronounced and, as a result, companies have been able to secure cost effective bases from which to operate. Ireland continues to adapt and enhance its offering to ensure that it remains a key location for FDI. Moving up the value chain, Ireland has gone from basic manufacturing to high value production, R&D and centres of excellence. We believe Ireland will continue to evolve and will continue to be a highly attractive proposition for investors.
*This article was originally published in Doing Business in Ireland 2013.
