We are always excited about working with Irish SMEs that are experiencing significant growth and are looking to expand their operations overseas. In this month’s blog, we discuss some of the tax considerations that often arise for these enterprises.

Corporate Structure

As businesses expand their operations and venture into new geographic or product markets, there are often compelling commercial reasons to consider operating through more than one company. In most cases, this involves establishing a group structure.

Implementing a group structure can offer several strategic advantages. For example, using separate companies for distinct business activities or geographic markets can:  

·        safeguard key assets, such as property, from trading risks associated with new adventures;

·        facilitate the development of specific parts of the business for potential future sale;

·       enable the business to provide key employees with a share in a specific part of the business;

·        enable the movement of loans, assets, or losses between group companies. 

While there are numerous tax reliefs available when setting up a group structure, these come with conditions. With proper tax planning, it is often possible to establish a group structure without triggering tax costs. However, careful consideration must be given to potential liabilities, particularly in relation to capital gains tax and stamp duty, as well as other tax implications that may arise.

Expanding into Foreign Markets

For some Irish businesses, foreign customers are part of their journey from the outset, while others expand internationally after establishing themselves locally. Internationalising a business is a complex process that requires meticulous planning. Below are some key considerations: 

·   When an Irish business sends employees to explore a foreign market to assess commercial opportunities, caution needs to be exercised because in certain circumstances the activities of just one employee could inadvertently create a “permanent establishment” (taxable presence) in that territory. This could result in foreign tax liabilities for the Irish business. 

·       Businesses may choose to establish a taxable presence abroad, such as a branch of the existing company or as a new legal entity. Before proceeding, it is crucial to evaluate both Irish and foreign tax implications. Key areas to address include the use of trading losses, repatriation of profits, and exposure to foreign taxes on trading profits.

·   Sending Irish employees abroad requires careful planning around payroll and social security obligations. Income tax reliefs such as the Foreign Earnings Deduction, Split-Year Residence Relief, and tax-exempt expense payments may be available to reduce costs. 

The Foreign Earnings Deduction (FED) is a tax relief available to individuals who are tax resident in Ireland but spend time working abroad in certain qualifying countries, including Algeria, Brazil, China, India, Nigeria, Saudi Arabia, South Africa and others. A full list of qualifying countries is available on the Revenue website at https://www.revenue.ie/en/personal-tax-credits-reliefs-and-exemptions/income-and-employment/foreign-earnings-deduction/who-qualifies-fed.aspx

The relief is designed to reduce the taxable income of individuals who meet specific criteria, thereby lowering their income tax liability.

Split Year Residence relief is a provision under Irish tax law that allows individuals who move to or from Ireland during a tax year to be treated as tax resident in Ireland for only part of that year. This relief ensures that individuals are not taxed on their worldwide income for the entire year, but only for the period they are considered tax resident in Ireland.

·        Selling products or services to foreign customers introduces complexities around VAT and sales tax. These considerations vary depending on: 

  - The type of product or service being supplied. 

  - Whether the customers are businesses or private individuals. 

  - Whether the customers are based within or outside the EU. 

Businesses must determine whether Irish or foreign VAT/sales tax applies and ensure compliance with any additional reporting obligations triggered by such transactions. 

Final Comment

As your business grows, navigating the tax landscape becomes increasingly important. Whether you are considering a group structure or expanding into foreign markets, early and informed tax planning can help you avoid unnecessary costs and ensure compliance. 

If you would like to discuss how we can support your business through its growth journey, feel free to get in touch with our team. We’re here to support you make the most of the opportunities ahead.