Why Is Ireland Such a Popular Mid-Shore Jurisdiction?

Ireland can be characterized as a mid-shore tax jurisdiction, meaning that it allows non-resident companies to register in the country, providing them with a lower tax rate and allowing them to create banking accounts anywhere in the world. There is no doubt that Ireland has successfully positioned itself as a very attractive mid-shore jurisdiction. Today, Ireland hosts over half of the world’s top 50 banks, half of the world’s top insurance companies, and a number of the world’s biggest information and technology firms, including Facebook, Google, eBay, Amazon, PayPal, Microsoft, and Twitter. So, what is it about Ireland that makes it such a popular mid-shore jurisdiction? Well, Ireland’s popularity can basically be attributed to two factors: its low corporate tax rate and a lax tax regime.

A Low Corporate Tax Rate

Ireland began to take shape as a tax haven dating back to as early as the 1950s. The 1956 Export Profits Tax Relief (EPTR) entirely exempted all manufactured export goods from both corporate income tax and profits tax. Tax exemptions expanded throughout the 1950s following the establishment of the Free Zone around the Shannon airport (the world’s first Free Trade zone). In 1981, Ireland instituted a single, across-the-board tax rate of 10 percent for all industrial sectors. This single tax rate has remained in effect for last 25 years. However, the tax rate did increase to 12.5 percent in 2003 and a higher corporate tax rate of 25 percent was introduced that same year for passive income, such as income from a foreign trade and from certain development and mining activities. Ireland’s low tax rate is a clear advantage. That means that if a U.S. corporation builds a factory in Ireland that generates $100 million in income, it only has to pay $12.5 million in taxes as opposed to the $35.5 million it would have to pay had it opted to build the factory in New York or California.

A Lax Tax Regime

Beyond a low corporate tax rate, Ireland also has a relatively lax tax regime. The country allows companies to move profits out of Ireland and into zero-tax jurisdictions. For example, Google was able to reduce its taxes by an impressive $3.1 billion between 2007 and 2010 by moving a significant chunk of its foreign profits to Bermuda via Ireland and the Netherlands, a move that allowed it to whittle its overseas tax rate down to 2.4 percent. This reportedly boosted the company’s earnings by 26 percent in 2010. Facebook has a similar structure in place, which enables the company to move earnings from Ireland to the Cayman Islands in order to reduce its overall tax obligations.

In conclusion, Ireland offers a number of tax advantages to companies, which makes it an attractive mid-shore jurisdiction. In addition to these financial incentives, the country also boasts a well-developed regulatory regime, robust links to the U.S. and Europe, a skilled workforce, and a high standard of living, all of which make it easy for a company to operate in the country. As mid-shore jurisdictions continue to grow in popularity, it is likely that Ireland will only continue to attract business.