Ireland Tax Guide For Professionals:
An Executive Summary
This is an introductory guide for Professionals, 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
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home page.
Business Formation: In terms of business
format, some types of professional are bound by the rules
of their profession, and have to use partnerships.
But more and more, you can choose to have a limited
company, which may help with liability. Most professionals
have to be appropriately qualified
or licensed. 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.
Some professional services don't have to worry about VAT,
especially if you're not limited. 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,
assuming you have a choice. 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.
Broadly, if you are building an investment-heavy business,
a company may be best, while if you are in a simple cash in/cash
out situation,
being an individual may be better. 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: A professional firm
usually has a static location, and you'll trade from there.
If you're selling services to corporates overseas it 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
may be 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
suitable types of professional activity, say an architectural
practice, in low-tax, 'offshore'
jurisdictions, especially if you are eventually
planning to retire
somewhere out of Ireland. All of the major accounting practices
seem to be based in Switzerland or similar. 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 small professionals 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 many of them apply to professionals,
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. At all events, 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
professional herself. Obviously, state
social welfare schemes apply to professionals as
much as to anyone else, although there may be problems if
you operate across national borders. Many professionals 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 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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