Ireland Tax Guide For Artists:
An Executive Summary
This is an introductory guide for Artists, linking in to
our full Ireland Fact-File. If you'd rather dive right in
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Business Formation: The government has a
fairly light touch in terms of statutory requirements. You
don't need anyone's permission to start making or selling
art-works, and you won't have to register or license your
business unless you form
a limited company, or you are Henry Moore and need
a fork-lift to move your scuptures around, which may require
a
special license. Banksie may have had planning
issues, perhaps. Many artistic creators operate very successfully
as individuals. Limited companies do have to be registered
of course, and have to report
annually. And remembering that the only two certainties
in life are death and taxes, inevitably you'll have to make
annual tax
returns, whether you're a limited company or not.
If you're really in a small way of business, you won't have
to bother with VAT,
which in any case doesn't apply to many types of artwork.
Of course if you take on staff,
life becomes more complicated!
Domestic Taxation: The big issue is whether
to be taxed as an individual
or as a company.
At first sight it's a no-brainer, with individual taxes going
up to 41% plus the 6% special
levy (the government has run out of money!) while
company profits are taxed at 12.5%. Needless to say, it's
more complicated than that, especially if you are a director
of your company. The special circumstances of an artist may
also have a bearing on the choice to be made; long-term streams
of royalty
income, if you are successful, may dictate the
use of a company. And Ireland does offer a particularly favourable
tax environment to individual creators. Husbands
and wives can play some interesting variations,
and get the best of both worlds. Longer term, the holy grail
is to turn income into capital,
something which artistic creators can achieve through sales
of rights; but it isn't easy - the Irish
Revenue got there before you! If you're not born
and bred in Ireland, another goal is to remain non-resident,
which means not having a permanent
establishment (fixed place of business) so that
you get taxed only on Irish-source
income. If there's one aspect of your business
on which you should consider taking paid-for advice, it's
probably the tax structure. It's so important to get it right
at the beginning!
International Taxation: If an artistic creator
has a static location, she'll trade from there, but one of
the advantages of this rather special way of life is that
you're not necessarily tied to one spot, and you have the
opportunity to base yourself in a low-tax
location. Getting royalty
returns without tax may be straightforward inside the
EU if you have a corporate set-up, although some countries
discriminate against low-tax locations, but it can be more
complicated because the foreign country may take a bite out
of your returns, called withholding
tax. Then you have to turn to double
tax treaties to try to get the money back. It's
all a bit of a jungle. If you set up a studio in a foreign
country, you need to try to avoid the 'permanent
establishment' trap, and you may get bogged down
in local VAT. If you send staff - or yourself - to work in
foreign countries you need to think hard about their tax situation
in advance, both in respect of local income taxation and perhaps
because of withholding
tax.
Tax-Efficient Structures: With a corporate
tax rate of 12.5%, there appears to be not much need for exotic
structures to minimize tax; but if you are resident, things
are not so simple. The favourable Irish environment for creators
may dictate that you remain there, but depending on the nature
of your income flows there may be a case to be made for locating
the business focus of your activities in a low-tax, 'offshore'
jurisdiction, especially if you are eventually
planning to retire
somewhere out of Ireland. As yet, there are no 'CFC'
rules in Ireland, so that profits made in such places can
stay there. Offshore structures are often useful for inheritance
tax and asset protection reasons as well, and anti-avoidance
law has not gone nearly so far in Ireland as in, for example,
the UK. Non-resident artistic creators meaning to operate
in Ireland can also use offshore structures, as long as they
avoid the 'permanent
establishment' trap.
Business Incentives: There is a wide variety,
almost a bewildering variety of support
schemes operated by various levels of government,
some of them in association with the European
Union, ofering direct grants to support employment,
rebates on taxes, tax credits for investors
in small businesses, and R&D
tax credits. Although not many of these will be relevant to
artistic creators, but it is well worth investigating what's
on offer. However, the saying: 'He who sups with the devil
needs a long spoon' comes to mind. The schemes are well-intentioned,
no doubt, but they can be intensely bureaucratic, with very
intrusive qualification procedures, and a long 'tail' of reporting
requirements.
Employing People: Many experienced employers
will just tell you: 'Don't do it'. 'Marry in haste; repent
at leisure', they say, and it was never so true than when
it comes to employment. Don't kid yourself that employees
will feel that they owe you anything. Today's workers, encouraged
by a slew of anti-business legislation from Brussels, and
the general nannying attitude of government, often feel that
the world owes them a living. Many employers of course bring
problems on themselves by treating employees as little better
than slaves. Most artistic creators run quite skinny operations,
but if you do need staff try as hard as you can to use contractors
(ie self-employed
people) rather than employees. The
Revenue has plenty to say about that, of course,
so if you are left with no choice, realize that you will have
to operate 'PAYE',
provide various statutory social
benefits, and that it is extremely hard to dismiss
an unsatisfactory employee once
you have taken them on. Of course, there are plenty of exceptions
to these rather sweeping generalizations. Lucky you if you
find some!
Welfare And Lifestyle: Meaning, for the
artistic creator herself. Obviously, state
social welfare schemes apply to artists as much
as to anyone else, although there may be problems if you operate
across national borders. Many creators will want to have improved
(meaning private) health
benefits, and almost all will want to find tax-efficient
ways of making provision for their pensions.
It's important to separate these from your business itself,
in case of failure. If you have it in mind to retire
to somewhere warmer and less highly taxed, then the time to
start is now, in terms of building
up a pension away from the grasp of the
Revenue.
International Aspects: Perhaps you plan
to live out your life as a respected and contented member
of your local community. The salt of the earth, one might
say, if that's not patronising. But some people, and perhaps
especially artistic creators, will find themselves drawn intentionally
or otherwise to an international existence, working and/or
living in other countries. There are many challenges: apart
from the difficulty of arranging your tax affairs satisfactorily,
there are the problems that go along with property
ownership, education
of your children, international removals, health
care and pension
provision, just to take some of the more obvious issues. Of
course no one can predict the future with any certainty, but
there are all too many stories of people who have trapped
themselves in the wrong investment in the wrong currency in
the wrong place, with multiple taxmen on their backs. Most
such problems are avoidable, with forethought.
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