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Taxation of Holding Companies in Ireland

Taxation of Holding Companies in Ireland

holding company in Ireland is registered for the sole purpose of owning and managing other legal entities. Ireland has become an attractive business destination for the registration of holding companies due to numerous tax advantages and tax exemptions (for example, this type of company can benefit from a capital gains participation exemption). 

Businessmen who want to open a company in Ireland as a holding company should also know that this business structure is exempted from the payment of the withholding tax on dividends and it can also benefit from the provisions of the double taxation treaties signed by this country. Our team of local consultants can offer advice on the tax benefits applicable to a holding company

Taxation system applicable to Irish holding companies – explained by our experts in company formation in Ireland 

Once a holding company is established in Ireland, it will become liable to taxation, as it is the case of any other business form registered in this country. One of the taxes applicable to a holding company is the corporate income tax, which is imposed at the standard rate of 12,5%. Our Irish company formation consultants present below the other taxes applicable to a holding company:

  • the passive income of a holding company is taxed at the standard rate of 25%
  • in the situation in which the company does not qualify for a tax exemption on the capital gains, it will be taxed at the standard rate of 33%;
  • the capital gains tax is not applicable if the holding company holds directly or indirectly a minimum of 5% of the ordinary share capital for a period of at least one year;
  • holding company that has disposable shares has to be a tax resident in one of the countries with which Ireland signed a treaty for the avoidance of double taxation

If you are interested in opening a company in Ireland in the form of a holding, do not hesitate to get in touch with our consultants for support.

Steps to establish an Irish holding company

After seeing how the taxation of Irish holding companies is an advantage for choosing such an enterprise, let’s see the steps to create one:

  1. choosing a legal form for the company;
  2. having the Articles of Association and Memorandum written and notarized;
  3. setting up a bank account;
  4. filing the documents with the Companies Registration Office;
  5. tax registration is the final step in opening such a company.

To name a few particularities, even if the private company is a preferred business option in Ireland, for a holding company, you may want to choose the corporation. This type of entity is more appropriate for its operations. Also, such a company needs at least 2 natural persons as directors. At least one of them must be an Irish or EU/EEA resident. For this purpose, you can use our nominee services.

How is the corporate income tax applied to Irish holding companies? 

In the situation in which the Irish company earns foreign dividend income and the respective dividend is paid from trading profits, the company will be imposed with the standard corporate income tax, imposed at a rate of 12,5%Our team of consultants in company formation in Ireland can provide further information on this matter.  However, certain foreign dividends can be imposed with a corporate tax of 25%, but tax exemptions can be applied in this case as well, under the Irish tax credit pooling system.

The participation exemption regime applicable to Irish holding companies

If the following conditions are met, an Irish holding company can sell shares in a subsidiary without incurring the Irish capital gains tax:

  • the holding company must hold at least 5% of the ordinary share capital and be entitled to at least 5% of profits and assets for a continuous 12 months;
  • the disposal must occur within 2 years of meeting the requirement;
  • if the ownership falls below 5%, the remaining shares can still qualify for the participation exemption as long as they are sold within the 2-year time frame.

To dispose of the respective shares, the company must be tax resident in a country with which Ireland has a double tax treaty with or is located in an EU Member State. Ireland has signed such agreements with a little over 70 countries. Also, the target company must be a trading company or form a trading group with the holding company and its 5% subsidiaries at the time of disposal.

If you decide to set up a company in Ireland that will qualify as a holding, you can rely on our company formation agents for guidance in the establishment.

Repatriation of profits from Ireland

Holding companies based in Ireland must pay a 20% withholding tax on dividends and profits distributed. The requirement to withhold tax is imposed on the company distributing the respective dividends.

Non-resident shareholders may be exempt from dividend withholding tax with the Irish tax authorities if:

  • dividends are paid to individuals in the EU (excluding Ireland) or a country with which Ireland has concluded a double tax treaty;
  • if the dividend is paid to a company in a qualifying country under domestic law.
  • dividends are paid to a company under the ultimate control of persons resident in a qualifying country;
  • dividends are distributed to a listed company or a listed company holding 75% of a subsidiary;
  • dividend distributions made in accordance with the EU Parent-Subsidiary Directive as implemented into Irish domestic law, where a subsidiary company pays the dividend to its EU parent.

Our Irish company formation advisors can assist in the preparation of the necessary documents associated to setting up a holding company.

Here is a video on this subject:

Taxation of interest payments made by Irish holding companies

In certain cases, the taxation of holding companies in Ireland may imply payments of interest on loans. Interest paid by an Irish holding company to non-residents is often subject to a 20% withholding tax. There are also exemptions from this withholding tax, such as when the holding company pays interest to a non-Irish resident company in the EU or a country with which Ireland has a double tax agreement.

Investors are invited to contact our team of specialists in Irish company formation for more details concerning this rule.