General Tax M&A introduction when buying an Irish business
Tax aspects are of high importance when buying a business. Your advisor needs to be up to date with the tax framework that applies to M&A transactions in Ireland. Here we mention some aspects that you need to consider when acquiring a company and setting up your tax structure in Ireland. Tax-efficient acquisition structuring is important to prevent possible tax claims after the acquisition date. Effective planning and structuring can help you avoid complicated legal and regulatory issues in cross-border acquisitions. We provide relevant tax knowledge ourselves in M&A transactions or work with tax specialists that bring in the required taxation knowledge.
Tax Law in Ireland is comprehensive and complex. The following article outlines some of the taxes involved when buying a business in Ireland and is not deemed to be comprehensive in nature nor should it be accepted as fact or advice. Tax Law in Ireland regularly changes and you should consult a Tax Practitioner prior to buying a business in Ireland. We will look first at the tax advantages of buying a company in Ireland related to Irish Tax.
Corporation Tax advantages
There are quite some tax advantages when buying a business in Ireland. These range from a low corporation tax on trading profits (only 12.5% but possibly going up in the longer run due to harmonization of European taxes). Possible tax credits on R&D expenditure (25% on yearly incremental expenditure). Further, capital allowances exist for expenditure on intangible assets and intellectual property. Finally there is an exemption to tax on receipt of patent royalty income.
A favourable Holding Company Regime
A favourable holding regime exists that can be interesting for larger firms that want to establish their selves in Ireland. Here are some of the benefits that exist:
- An exemption from capital gains tax on the disposal of shares in subsidiaries
- 12.5% tax rate on foreign dividends out of trading profits of companies that are resident for tax purposes in EU Member States (‘EU’) or in countries with which Ireland has a tax treaty (‘DTA’)
- Interest deduction is available to Irish companies borrowing funds which are used to acquire shares in trading subsidiaries or to make loans to such subsidiaries
- Ireland has signed comprehensive double taxation agreements with 60 countries. The agreements cover direct taxes, which in the case of Ireland are income tax, corporation tax and capital gains tax.
- There are a number of rules that enable the reduction of the tax liability as follows:
- Retirement Relief (oddly one doesn’t actually have to retire only from the business in question)
- Special Pension Contribution
- Employment Termination Payment
Tax Consideration in Asset Purchases
Assets purchases will be structured differently in all cases and one has to look in detail to assess possible tax liabilities. An asset purchase incurs a higher Stamp Duty cost for the seller than a share sale. The tax implications of a sale will depend upon the type of asset purchased and the type of consideration paid.