IRELAND Law and Practice Contributed by: Amelia O’Beirne and Trevor Glavey, A&L Goodbody
can potentially qualify as “trading” activities benefiting from the 12.5% rate. When calculating the taxable profits of a trade, expenditure incurred wholly and exclusively for the purposes of the trade and which is not capital in nature is allowable as a deduction against the trading income. As a small open economy, Ireland has introduced tax legislation intended to make Ireland an attractive location for foreign direct investment. In this respect, a number of notable incentives and reliefs are avail - able for companies doing business in Ireland that can reduce the overall amount of corporation tax payable on their business profits, including: • a regime that provides tax relief on the acquisition cost of intellectual property (IP) and other intangi - bles; • an OECD-compliant R&D tax credit regime; • an OECD-compliant patent box regime; • extensive domestic exemptions from withholding tax on interest and dividend payments; • no withholding tax on royalties paid to EU member states/DTA countries; • no thin capitalisation rules; and • no capital duty. 3.3 Passive Income For individuals, the Irish income tax treatment of divi - dends, interest and royalties follows the general rules outlined in 2. Territoriality, Residence and Permanent Establishment . Taxation of Dividends A distribution received by an Irish tax-resident com - pany from another Irish tax-resident company is not chargeable to income tax or corporation tax, and forms part of the franked investment income of the recipient company. Foreign dividends received by an Irish tax-resident company may either be: • exempt from Irish corporation tax if the conditions of the participation exemption are met;
• taxed at the 12.5% rate of corporation tax (as described in more detail below); or • taxed at the 25% rate of corporation tax. Subject to the following, for companies resident in Ireland, passive receipts of foreign dividends, interest and royalites are generally subject to corporation tax at a rate of 25%. With respect to dividends received by a resident company from companies resident for tax purposes in an EU member state, a country with which Ireland has concluded a DTA, a non-EU non-DTA partner country that has ratified the OECD Convention on Mutual Administrative Assistance in Tax Matters or a non-DTA country where the paying company is a member of a publicly listed group, such dividends are liable to tax at the 12.5% rate of corpo - ration tax where: • 75% or more of the dividend-paying company’s profits are “trading” profits (other than profits from what is known as an “excepted trade”), being either trading profits of that company or dividends received by it out of trading profits of lower-tier companies resident in the EU, a country with which Ireland has a DTA, a non-EU non-DTA partner country that has ratified the OECD Convention on Mutual Administrative Assistance in Tax Matters or a non-DTA country where the paying company is a member of a publicly listed group; and • the aggregate value of all assets used by the receiving company and each company of which it is a parent for their trades is not less than 75% of the aggregate value of all their assets. An election must be made in the company’s annual corporation tax return to avail itself of this treatment. Where a company does not own (directly or indirectly) more than 5% of the share capital of the foreign divi - dend-paying company, any such dividends received, which form part of the trading income of that company taxable at 12.5%, are not subject to tax. Under the Finance Act 2024, Ireland introduced a par - ticipation exemption in respect of foreign dividends. The Finance Act 2025 subsequently expanded its geographical scope and introduced certain other technical amendments such that it now applies to divi -
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