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Ireland-US Double Tax Treaty

Ireland-US Double Tax Treaty

The first treaty for the avoidance of double taxation between Ireland and the United States of America was signed in 1997. The agreement was enforced a year later by both countries. The Ireland – USA double tax agreement was signed with the purpose of avoiding the double taxation of both legal entities and natural persons who are tax residents of the two states.

Our specialists in company formation in Ireland can provide you with more information on the provisions of the tax agreement, as well as on the tax advantages that natural persons and legal entities can benefit from. Our consultants can assist companies with in-depth information on any of the tax exemptions prescribed under this treaty. 

Taxes covered by the Ireland-US double tax treaty

The treaty signed by the two states covers the next taxes: the federal income tax and the federal excise taxes in the United States and the income, the corporate and the capital gains taxes in Ireland. The agreement also applies to similar taxes levied in both countries.

Special provisions apply to permanent establishments which are deemed as business sites where an US or an Irish company will carry out their activities. Branch offices are considered permanent establishments. The treaty prescribes the types of business establishments that fall under the definition of a permanent establishment and the conditions a foreign enterprise must respect in order to be considered a permanent establishment. 

Taxation under the Ireland-USA double tax convention

According to the double taxation treaty between Ireland and the US, business profits of a company will be taxed only in its residence country, except for permanent establishments whose profits will be taxed in the country they are carrying out their activities. Shipping and air transport activities will also be taxed in the country where the company carrying out those activities is registered. Income derived from immovable property will be taxed in the country the property is situated in.

Are there any reduced taxes under the Ireland-USA tax treaty? 

Where the avoidance of double taxation cannot be imposed, the treaty between Ireland and the United States provides for reduced taxes, as it follows: a 5% rate applies to dividend payments if the recipient owns at least 10% of the shares in the company paying the dividends and a 15% tax rate in all other cases, a 0% rate applies to interest payments and a 0% tax rate applies to royalties payments.

How is residence defined under the Ireland – USA tax treaty? 

American businessmen who are interested in opening a company in Ireland (or vice versa) must know that the taxation of business entities (as well as of natural persons and other types of entities) is generally concluded based on the residency (more exactly, the tax residency) of such persons. The double tax agreement stipulates the meaning of the term, which is defined by the Article 4 that presents the following: 

  • • a resident of a contracting state refers to a person who is liable to taxation in the respective state, based on his or her domicile or residency;
  • • at the same time, residency refers to a place of management, the location where a company is incorporated or to any other means that could define the residency of an entity;
  • • a resident of a contracting state also refers to the qualified institutions of the respective state;
  • • the term also takes into consideration pension funds or similar vehicles that are created with the purpose of administering retirement of employment benefits;
  • • residency also includes business vehicles registered as regulated investment companies or real estate investment trusts (in the case of the United States of America);
  • • in the case of Ireland, it refers to funds registered as collective investment undertakings. 

If you need legal services in USA, we can put you in touch with our local partner lawyers.

What is a permanent establishment under the Irish – American treaty? 

We have mentioned above that the double tax treaty signed by the United States of America and Ireland defines the term permanent establishment (PE), which is of high importance for tax residents of a contracting state operating in the other contracting state due to the fact that it establishes the manner in which such entities will be taxed (and where). Our team of consultants in company registration in Ireland can advise American businessmen on the tax regulations applicable in the case of a PE, but it is important to know that the following will apply: 

  • • the term PE defines a fixed place of business, in which a company carries out a part of its business activities or all its business operations;
  • • the PE can refer to a wide range of businesses, such as a place of management, a branch office, a factory or a workshop;
  • • the PE also refers to business establishments which have as a main activity the extraction and exploitation of natural resources (mines, quarries and others);
  • • a building site can also be considered a fixed place of business (it includes construction projects or installation projects);
  • • however, the building site can only be considered a PE in Ireland or the USA as long as the business activities are carried out on a continuous period of at least 12 months. 

What are the regulations concerning the taxation of dividends? 

Article 10 of the double tax treaty signed between Ireland and the USA stipulates the manner in which dividends are taxed. As a general rule, dividends that are paid by a company that is a tax resident of a contracting state to a company that is a resident of the other contracting state are taxed in the latter jurisdiction. Dividends can also be taxed in the country where the company paying the dividends is a tax resident, but only in specific conditions, which can be presented by our team of specialists in Irish company formation

What are the tax regulations for property income? 

In the case in which we refer to the income obtained by an American tax resident from real property in Ireland, it is necessary to know that such income will be taxed according to the Irish tax laws. The real property refers to real estate property, forestry or agriculture, but it can also include other types of properties, as defined by each of the laws of the two contracting states.  

The taxation of the income obtained from property in Ireland refers to any type of income that can be obtained through the respective property. This takes into consideration the direct use of the property, the income obtained from renting the respective property, or any other type of use from which the taxable person can obtain an income. These regulations apply to both natural persons and legal entities, as stipulated by the Article 6.4. 

For complete information about taxation under the agreement with the United States, do not hesitate to contact our Irish consultants in company formation. Our specialists can provide investors with information on the taxation system applicable to companies operating in Ireland, as well as on the tax compliance procedures necessary for each business type.