Ireland has established itself as a key technology hub in Europe with a cluster of major global technology companies with significant operations here. Most people will be familiar with Ireland’s 12.5% corporate tax rate which is very attractive - it is important to note that tax cannot be seen as an isolated FDI driver.
The truth is that companies usually assess a number of competing factors when choosing a location for foreign investment. Ireland’s increasing level of cost competitiveness, educated work force, improved infrastructure, government support and commitment to the EU, and impressive track record have been the determining factors for many technology companies to locate here.
Ireland has had a pro-business environment for multinationals since the 1950s. However, over the years, Ireland’s growing reputation as a dominant location for FDI has resulted in the country evolving from basic manufacturing to facilitating investment by companies in a number of sectors, one of the most significant of which is technology and media.
Because of the long-time presence of industry leaders in Ireland, new entrants are encouraged to invest in Ireland. Also, because of their prior positive experience existing companies have been encouraged to bring new projects to Ireland as they are confident that Ireland will deliver. According to IDA, 93% of overseas companies rate their investments in Ireland as a success.
In particular, Dublin has attracted a number of high profile multinational companies, which has created a cluster effect. This has also been attractive to smaller technology companies who are often looking to set up their first presence outside the US.
Demonstrating Ireland as a technology hub is the fact that 10 out of the top 10 technology companies are located in Ireland.
Availability of skilled labour
The availability of talented and flexible employees had been a key attraction for companies setting up/expanding Irish operations. Recent surveys have shown that the share of population aged 25-34 with third level qualifications is higher in Ireland than in the US or UK and above the OECD average. Furthermore the IMD awarded the Irish workforce as number one for their flexibility and adaptability.
The Irish Government is addressing the increasing pipeline for talent by ensuring that Irish universities and schools have a sufficient number of courses and places to produce the increasing talent required. Also, there have been some changes providing for additional work permits for ICT professionals with relevant skills.
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.
Ireland’s tax regime
The headline corporation tax rate is 12.5% and the effective tax rate can be lower than this 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 industrial policy has been firmly focused on attracting and retaining FDI for the last fifty years. Given the changing landscape and increased focus by governments and media on taxes, tax reputation is becoming a more important factor in winning FDI projects. As part of Budget 2014, the Government published a new international tax strategy statement which sets out Ireland’s objectives and commitments in relation to these issues. Minister Noonan stated that he wants “Ireland to play fair” but also to “play to win”. The Government recently published a Consultation Paper in response to the OECD Base Erosion and Profit Shifting (BEPS) project. This paper seeks views on a new IP regime to ensure that Ireland remains competitive while adhering to EU and other international best practices.
Other attractive features of the Irish tax regime include:
R&D Tax Credits - if a company has overcome technological challenges to develop new products, processes, materials or certain services for its own use or its customers’ use, then it may qualify for generous Irish R&D tax credits.
Intellectual Property Regime - Ireland’s current onshore IP regime allows for capital allowances to be claimed on IP acquired by an Irish company for the purposes of its trade. Many companies have successfully amalgamated their supply chain management and IP management in Ireland. Consideration is being given to a new regime to ensure that Ireland remains competitive in a post BEPS world.
Special Assignment Relief Programme - this relief was introduced for new employees arriving to Ireland from January 2012 which allows them a relevant amount of compensation otherwise liable to tax in Ireland to be excluded from tax.
The Irish Government and all political parties in Ireland recognise the importance of the EU market for US multinationals since joining the EU over 40 years ago and that commitment to the EU has never wavered. Ireland has supported inward investment through a range of services and grants available to companies considering foreign direct investment in Ireland. These are offered by IDA Ireland, Ireland’s inward investment promotion agency, to both new and existing clients. Due to changes in EU State Aid rules, there is now more flexibility in respect of grant aid for R&D projects and there is an increase in the locations in Ireland that may qualify for regional grant aid.
As stated above, there is increased global scrutiny in the area of taxes in recent years by tax authorities and the media. This has focused attention on ensuring a group’s operating model rewards its value adding entities and substantial operations. Ireland is eager that the country’s reputation is maintained while ensuring that the tax regime remains competitive. Therefore as a location where many multinationals already have significant operations and given the variety of non-tax benefits that Ireland offers, Ireland is well placed to attract further investment as companies seek to build up robust operations.
This article first appeared in the July 2014 edition of Silicon Valley Global Magazine.