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Taxation in Ireland

After going through the fiscal crisis of the 1980s, the State gradually began to expand the corporation tax base. Some restrictions were applied to financing based on taxes between 1982 and 1986. Then in late 1980s and early 1990s a general shift appeared in industrial policy, broadening tax base in the area of corporation. Basically, the Irish corporation tax is imposed on the worldwide profits. It is composed of chargeable gains and incomes of companies residing in the country. Foreign companies, on the other hand, are subject to corporation tax on its chargeable profits.

Ireland has a specific Corporation Tax Code which includes four basic tax expenditures aiming to achieve certain policy objectives: the Knowledge Development Box (KDB), Development (R&D) Tax Credit which are designed to increase Business Expenditure on Research and Development (BERD). However, unincorporated businesses, for example, self-employed persons or sole proprietorships cannot be a subject to corporation tax. This means that profits and gains arising from companies’ trade are viewed as income chargeable to income tax.

Statistics

Ireland’s taxation system ir progressive which means that the higher are incomes, the higher is a tax rate applicable to those incomes. Data collected last year (2016) shows (Publicpolicy.ie) that the tax paid by one person on earnings that are half average is the 2nd lowest in the OECD (altogether 34 countries) which, for example, is 1/10 of Denmark’s rate.

Types of taxes in Ireland

Ireland has several types of taxes: an income tax, a value added tax (VAT), corporation tax and also Universal Social Charge (USC) on your employment income and Pay Related Social Insurance (PRSI).

Corporate taxes

A tax on company income imposed by Ireland’s authorities was approved since the establishment of the Irish Free State in 1922. There is also an Article 74 of the Constitution of the Irish Free State stating regulations for transitional provisions related to collection and imposition of taxes that were imposed previously under the British administration in Ireland.

The common corporate tax rate qualifying dividends from EU and tax treaty territories is fixed at 12.5%. However, corporate tax of 25% is imposed on all passive incomes. Companies may be subject to other taxes though. For example, stamp duties on the transfer of property – the rate are 1-2%, local property taxes with the rate of – 0.18-0.25%. There are also industry-specific taxes established in the country. For example, it can be a shipping tonnage tax or construction operations tax.

In addition, there is a special tax which applies to certain petroleum activities, depending on the profit yield of a site. Therefore, the applicable tax rate can range 25%- 40%. Another example is a carbon tax which is applied on mineral oils such as kerosene or auto fuels, which can be purchased in Ireland. The rates of such taxes are equal to EUR 20 per ton of CO2 emitted.

VAT tax

VAT in Ireland can be referred to as a consumption based tax assessed on the value added to available goods and services which can be applied to almost everything that country offers and sells for use or consumption. VAT tax rate applicable in the country is 23%. However, there can other tax rates depending on the type of goods or services provided.

Income taxes

Every person living in Ireland must pay his or her worldwide income taxes. The basic condition is living in Ireland for 183 days or more during one tax year or for 280 days or more during the tax year and the previous tax year. If less than that, then a person is not considered tax resident and shall only pay taxes on income earned in Ireland. Tax rates for incomes are: up to 33 800 EUR – 20% and over 33 800 EUR – 40%. There is a special Pay As You Earn (PAYE) system established in the country governed by Irish Tax and Customs office.

Pay Related Social Insurance (PRSI)

PRSI payments can be considered as a part of the Social Insurance Fund (SIF). This fund provides help by paying for Social Welfare benefits and pensions. It shall be paid by all employed residents except those who are earning 38 EUR or more per week by doing full-time or part-time job, workers who are self-employed and their annual income is 5,000 EUR a year or more and persons who are 16 years old or over or are under pensionable age.

Universal Social Charge (USC)

USC is referred to as a tax which must be paid on person’s total income. However, there are some types of income that are exempt. For example, an individual can pay USC at the standard rate or the reduced rate, depending on the circumstances. Reduced rates of Universal Social Charge apply to those individuals who are aged 70 or older or hold a Medical Card which is full, if a person reaches the age of 70 or holds a full medical card at any time during the year, having total income of 60,000 EUR or less otherwise the standard rates of UCS shall be applied to incomes.