Ireland Tax Guide For Small Businesses:
An Executive Summary
This is an introductory guide for Small-Business People,
linking in to our full Ireland Fact-File. If you'd rather
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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 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, eg to run a pub or make atom bombs.
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 a small business, you won't have to bother
with VAT.
Of course if you take on staff,
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. 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 sort of business,
being an individual trader 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 small business
usually has a static location, and you'll trade from there.
If you're selling goods overseas it's straightforward, at
least within the EU, but if you're selling services to corporates
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. 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. E-commerce companies have special opportunities
and special problems, although the new
EU VAT rules do simplify matters to some extent.
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
businesses in low-tax, 'offshore'
jurisdictions, 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 small businesses 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. 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. 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
business person herself. Obviously, state
social welfare schemes apply to business owners
as much as to anyone else, although there may be problems
if you operate across national borders. Many business-people
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, 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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