Ireland Fact-File Part 4:
Personal Business Tax-Efficient Structures
4.3 Ireland Individual Business use of Offshore
Tax-efficient structures involving offshore jurisdictions
The low (12.5%) company tax rate in place in Ireland can
offer a significant degree of tax efficiency domestically.
In terms of asset protection, however, the offshore trust
may be used by an individual to shelter their assets, although
not legally from the tax-man.
Using offshore jurisdictions
There are no offshore jurisdictions that are especially advantageous
for unincorporated Ireland-based individuals. This being the
case, the jurisdictions best suited are likely to be those
in the same time zone as the individual, and which speak the
same language (assuming an English-speaking business person!)
From this point of view, a finance centre such as Jersey would
be ideal.
The term 'offshore' is not used in Jersey legislation or
in describing company forms. Non-residence has been the key
criterion for obtaining offshore tax treatment. Normally,
non-resident tax treatment is given to foreign income, while
income arising in Jersey is taxed more highly.
The main forms useful for offshore operations in Jersey include
the Limited Partnership and Trust, and until recently the
International Business Company and the Exempt Company.
The 'zero/ten' tax system was introduced on January 1, 2009,
imposing a 0% rate on ‘non-financial service entities', a
20% rate on utility companies, and a 10% rate on:
- All entities carrying out banking business through a permanent
establishment in the Island, whether through a Jersey company,
through a branch or through some other structure.
- All entities carrying on the business or trade of trust
business through a permanent establishment.
- All entities carrying on investment business, independent
financial advice and similar activities through a permanent
establishment.
- All entities carrying on the business or trade of funds
administrator or funds custodian through a permanent establishment.
However, the jurisdiction is facing the prospect of having
to change this regime again, in response to goalpost-shifting
on the part of the European Union.
Updated in December 2010
In late 2010, speculation on the UK Treasury's intentions
with regard to the zero-ten regimes in place in the Crown
Dependencies was sparked by a statement obtained by Channel
Online TV following the December meeting of the Economic and
Financial Affairs Council (ECOFIN), at which Jersey and the
Isle of Man’s tax regimes were discussed, and a report presented
by the EU Code of Conduct Group was endorsed.
The governments of both jurisdictions were quick to stress
that the EU's investigations into the matter were ongoing,
and that no conclusion had yet been reached with regard to
the future of zero-ten taxation.
Offshore structures, such as trusts, can also be employed
by an independent for the purposes of asset protection.
Jersey is a party to the Hague Convention on the Law Applicable
to Trusts and Their Recognition. Jersey trust law explicitly
excludes foreign inheritance laws and does not recognize foreign
judgements. The creation of a trust is free from Government
duty and there are no registration or audit requirements as
such in Jersey, although the tax authorities of beneficiaries'
jurisdictions (eg the UK) may require annual reports.
Jersey trusts may 'migrate' to other jurisdictions by changing
trustees and the applicable law of a trust; likewise, foreign
trusts may migrate to Jersey.
A Jersey trust is governed by the law of Jersey. In the case
where the beneficiaries of a Jersey trust are non-resident,
income arising from sources outside Jersey is not liable to
income tax in Jersey, nor are distributions to the beneficiaries.
Interest on bank deposits made by the trustees of a nonresident
trust is not taxed because of a government concession. The
trustees of a non resident trust are not required to make
returns or provide accounts of the trust to the Comptroller
of income tax. Trust accounts must be kept but do not require
auditing.
However, it is worth being aware that the rules governing
the taxation in Ireland of offshore (or indeed any foreign
trusts) are complex for Irish individual residents, and income
and capital gains accruing to trusts (and non-resident companies)
are likely to be assessed to the Irish-resident settlors and/or
beneficiaries and/or owners of the trusts or companies, whether
or not they are distributed.
By way of exception, however, an offshore trust established
by a husband and wife who are excluded from benefitting under
it, and whose trustees are not Irish-resident, is taxed only
on Irish-source income, meaning that if the beneficiaries
are, for example, children or grand-children, the assets contained
in the trust will only be taxed in Ireland if they are remitted
to the Republic.
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