Ireland as a Location for Doing Business

Author:Mr Andrew Bates
Profession:Dillon Eustace
 
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The attraction of Ireland as a business location can be largely attributed to the positive approach of successive Irish governments and their agencies to the development of inward investment, its membership of the European Union, a very competitive corporate tax rate and a highly qualified, innovative and flexible labour pool. In addition, Ireland remains increasingly aware of the importance of cost competiveness with the other EU member states and the Irish Government continues to address this issue. Over 1,000 international companies have considered these benefits and ultimately opted for Ireland as their preferred location to serve the European market. These companies are involved in a wide range of business activities and sectors, including the following: Financial Services Since its establishment in 1987, Dublin's International Financial Services Centre (IFSC) has emerged as a significant global financial centre. The IFSC is serviced by a range of international financial services companies that carry out activities such as banking, fund management and administration, corporate treasury, aircraft and equipment leasing and insurance services. AIG, BNP Paribas, Citigroup, Pioneer, JP Morgan, Morgan Stanley, Bank of America, Deutsche Bank, Orix and AWAS are just a few of many established international financial operations located in Ireland. In addition, over 350 fund promoters from 50 different countries have established regulated investment funds in Ireland. Electronics and Engineering Leading multinationals have established operations in various geographical locations in Ireland, where they carry out a wide range of manufacturing and research related activities. Examples of such companies include Thermo-King, Liebherr, SR Technics, Siemens and Ingersoll Rand. Pharmaceuticals, healthcare and biosciencesMany global leaders in the healthcare, pharmaceutical and bioscience sectors, including Boston Scientific, Pfizer, Johnson & Johnson, Elan, Schering-Plough and GlaxoSmithKline, have a significant presence in Ireland. Research & Development Ireland's intellectual property laws combined with recent Government initiatives including tax credits, the patent royalty tax exemption scheme, support from the Government funded Science Foundation Ireland (SFI) and a focused approach to furthering the development of a 3 sophisticated knowledge based economy, have resulted in the establishment of numerous research and development projects in Ireland. In 2008, almost 43% of all Industrial and Development Agency (IDA) supported foreign direct investments into Ireland were Research and Development initiatives ranging across a broad spectrum of sectors and industries. Internationally recognised names such as EMC, Pfizer, Genzyme, Intel, Aon, Sony, Toshiba and IBM have selected Ireland as their base for such projects. Sales & Marketing Strategic global business development and support activities have been implemented from Ireland by multinationals such as IBM, Kelloggs, Google and McAfee. Teleservices A variety of language skills amongst an available workforce have influenced the creation of a large number of call centre, telemarketing and shared services centres in Ireland. In recent years, American Airlines, Hertz, UPS, Oracle and Xerox have chosen Ireland as a location for such centres. Holding Company Regime Ireland's capital gains tax exemption for certain shareholdings accompanied by reliefs for overseas tax on dividend income received by Irish resident companies has contributed to a significant increase in the establishment of international holding companies in Ireland. Such reliefs have facilitated the use of Irish registered companies as investment vehicles for foreign investors seeking the most tax efficient means of investing in international projects in a number of countries, including China, Japan and the USA. Incentives for Inward Investment in Ireland Ireland is a long-standing and committed member of the European Union and offers investors ready access to that market. Notwithstanding that in June 2008, 53.4 per cent of Irish voters rejected the adoption of the Lisbon Treaty, the Irish Government continues to strongly endorse the Lisbon Treaty and a revote in Ireland, presenting new benefits for Ireland in the event the Lisbon Treaty is ratified, is anticipated before the end of 2009. The Irish government actively encourages international companies to choose Ireland as a European base by providing a package of incentives which consist of fiscal incentives and financial assistance. Such state financial assistance, usually in the form of grant assistance, can contribute to significant reductions of initial start up costs. The availability of grant assistance is largely dependent on two factors; first, the intended geographical location of the project in Ireland and, secondly, the level and quality of the employment that is to be created. Projects in the regions outside of Ireland are more likely to obtain assistance. The IDA is the primary government agency with responsibility for creation of employment and the promotion of foreign direct investment into Ireland and the development of those international companies that have an established Irish presence. The IDA remains committed to attracting high level foreign direct investment and can generally provide a wide range of grant aid for new industry. In 2008, the IDA attracted 130 foreign direct investment projects, securing circa € 2 billion in investments. The following grants are available from the IDA: Capital Grants The cost of acquiring fixed assets, such as land, buildings, new plant and equipment, can be subsidised by capital grants. In certain circumstances, aid may be available for the acquisition of intangible assets such as patent rights, licences and know-how. The amount of such grants is subject to a maximum level which is determined by EC State Aid rules. The grant agreement will normally place restrictions on the disposal of grant-aided assets. Employment grants Employment grants are available where permanent full-time jobs are created. These are the most common type of grant and are non-taxable. The amount of grant paid depends on the location of the project, the level of investment involved, the activities undertaken and the skill level of the employee. Typically, the higher the skill level of the employee, the greater the amount of the grant. Research and Development grants Certain companies are eligible to apply for grants towards the development of R&D functions and facilities in Ireland. In addition, international companies operating in Ireland are eligible to apply for R&D grants offered by the European Union. Other categories of grants The IDA may offer companies grants towards the cost of "innovation" projects such as aid to new innovative enterprises or innovation in services, and grants towards the cost of substantial training programmes. Another grant awarding body, namely Shannon Development, offers grants to foreign inward investors that establish projects in the Shannon region. Udaras na Gaeltachta, a body responsible for encouraging investment in the Irish (Gaelic) speaking areas of Ireland, may offer a variety of grants. Science Foundation Ireland (SFI) awards grants to distinguished scientists, academic researchers and research teams who are most likely to generate new knowledge, technologies, and leading competitive enterprises in biotechnology and information and communications technology. Grant Application Procedure The application process for IDA grants generally takes a number of weeks from the receipt of all application documents/information. Following an introductory meeting, the IDA will request the submission of a formal business plan with respect to the project of interest. Generally, the business plan should contain the following: background information on the applicant company; - a description of the proposed project and the reasons for selecting Ireland as a business location; proposed ownership structure of the Irish operation; and - financial projections for a period of five years. In the normal course of events, the IDA will then seek clarification on aspects of the business plan, and once clarified, shall make outline proposals in relation to grant aid. Negotiations, in respect of the level and form of the promoter's investment, the level of grant aid and any related matters, then follow. In the case of capital and employment grants, the number, quality and location of jobs to be created are major determinants of the overall grant amount awarded. An internal review process of the project is carried out by the IDA and in the case of very large projects the proposed grant package may require Irish Government and European Union approval. Grant Agreement If the application is approved and an incentive package agreed, a grant agreement is then entered into between the IDA, the Irish entity and its promoter/parent company. This agreement, which sets out the terms on which the grant aid is given, may vary. However the following key provisions are typically standard: - a standard requirement that the aggregate level of grants paid must be matched by an equal amount of equity investment by the promoters. The IDA's preferred position is that this equity be in the form of common stock or ordinary share capital. However, "equity equivalent" is normally acceptable up to a maximum of 75% of the total grant aid. Equity equivalent is usually in the form of subordinated loans from the promoters or undistributable reserves or capital contributions; - a prohibition on a change of control of the parent company or Irish entity without IDA consent; - provision for the repayment of the grants in the event of a breach of conditions of the grant agreement, an appointment of a receiver or liquidator to the company, a sale of the property which has been grant aided, a failure to achieve employment...

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