Ireland has significant tax incentives for Irish resident companies involved in the acquisition, development and licensing of IP. These include:-
- 6.25% tax rate for onshore IP companies
- Patent/Knowledge Development Box regime
- R&D tax credits
- Favourable taxation of foreign dividends
- Tax depreciation on intangible assets
- Repatriation of profits
Coupled with Ireland's general regime for holding companies (see here), this makes the country an appealing location for location of IP activities.
Rates of Irish corporation tax range from 6.25% for onshore R&D activities, 12.5% for normal trading activities and 25% on foreign income and passive income such as interest, rental and other non-trading income.
The 12.5% rate applies to trading profits generated by an Irish company where the required level of substance in Ireland is met.
Expenses incurred wholly and exclusively for the trading purposes are tax deductible in calculating the taxable trading profits.
Special calculation rules apply for licensing income and income streams from certain activities.
Ireland has a "Knowledge Development Box" or Knowledge Development Box" regime which taxes profits arising in connection with qualifying assets generated by R&D carried out by an Irish company at 6.25%.
Qualifying assets are defined as patents, copyrighted software and inventions that are certified by the Controller of Patents, Designs and Trade Marks as being novel, non obvious and useful.
Qualifying expenditure includes own account expenditure and R&D activities carried on within the EU.
Companies carrying on R&D activities in Ireland are entitled to claim a tax credit of 25% in respect of expenditure incurred within Ireland and the European Economic Area.
This tax credit may be claimed in addition to any tax deduction available in respect of expenditure on patents, trademarks, scientific research etc.
Qualifying R&D expenditure includes expenditure on plant and equipment and on buildings.
The R&D tax credit can be offset against a company’s corporation tax liability (past, current or future) or paid to certain key employees as tax free remuneration.
Ireland also has an extensive Double Tax Treaty network and operates a generous foreign tax credit pooling arrangement regarding the taxation of income from investments including dividend income received from trading companies resident in the EU or treaty country.
Such dividends are generally subject to the 12.5% rate, but the availability of tax credits in practice means that generally, such dividends are not subject to further tax in Ireland.
Ireland also provides for a unilateral tax credit in respect of foreign withholding tax suffered.
Companies may claim tax depreciation allowances in respect of the capital cost of acquiring a broad range of intangible assets where they are used in the course of a trading operation carried on in Ireland.
Qualifying assets for these purposes include most IP rights, patents, trade marks, copyright, computer software, know-how including secret processes and formula related to industrial, commercial or scientific experiments/techniques, research rights related to medical effects or medicines and other intangible rights.
The allowances can be written off in line with the amortisement charge in the company’s accounts or, over 15 years.