Ireland Tax Guide For Contractors:
An Executive Summary
This is an introductory guide for Contractors, linking in
to our full Ireland Fact-File. If you'd rather dive right
in to the Fact-File, you can use the navigation on the right
of this page, or start from the Ireland
home page.
Business Formation: The government has a
fairly light touch in terms of statutory requirements, although
there are special rules covering the provision of sub-contract
workers in some sectors. Other than that, you don't need anyone's
permission to start a business, and you won't have to register
or license your business unless you form
a limited company, or unless you require a
special license. 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 in a small way of business, you won't have to bother
with VAT.
Of course if you take on staff,
either to work in the office, or to contract out, life becomes
more complicated!
Domestic Taxation: The big issue is whether
to be taxed as an individual
trader 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. And special considerations
affect the choice of a contractor, who may have some fairly
complex relationships with customers and sub-contractors.
Staying out of the relative glare of limited company life
may sometimes be advisable. 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, 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 a contracting
business has a static location, you'll trade from there, but
one of the advantages of the business is that you're not necessarily
tied to one spot, and you have the opportunity to base yourself
in a low-tax
location. Selling services to corporates across
borders can be 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. And if you're big enough, VAT is an
extra complication. If you set up a branch 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, and there is a case to be made for locating
a contracting business 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 contractors meaning to trade 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 too many of these will apply to
the business of contracting, 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 businesspeople 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. Although in some circumstances
the law may force contractors to employ their sub-contractors,
try as hard as you can to use 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
contractor herself. Obviously, state
social welfare schemes apply to contractors as
much as to anyone else, although there may be problems if
you operate across national borders. Many contractors 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 contractors, will find themselves drawn intentionally
or otherwise to an international existence, doing business
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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