The services sector continues to drive economic growth and wealth creation globally. Supported by rapid developments in the digital technology space, as well as evolution in thinking on sustainability, innovative firms are at the heart of economic growth.
At the core of this knowledge-based economic model is intellectual property (IP), with smart firms now seeing IP as an asset in its own right.
If they protect and manage their IP correctly, then they are likely to be more competitive, more productive and have a much higher chance of success – enhancing their own market value and ultimately contributing to economic growth on a greater scale.
Having a robust but flexible platform for IP is critical – and we are seeing this play out in Ireland as firms look for stable locations with a business-friendly environment that can support their growth trajectory.
Ambitions
There are many reasons as to why a company would look to Ireland to support its ambitions. Fundamentally, Ireland is generally regarded as a stable, competitive, secure, transparent and pro-business country. Regardless of which of the two main centre-leaning political parties form the government, each has an objective of continuing to develop Ireland as a great country in which to do business.
Critically, Ireland is also a committed member of the European Union, the EU Single Market and the Eurozone – in a recent poll, more than 85% of the population were in favour of continued EU membership. This is a highly attractive strand of Ireland’s proposition, positioning it as a key gateway to EU investor capital.
The skills base is also attractive. Ireland has one of the most educated workforces in the world, with more than 50% of the key 25-34 age group having a university or other third-level qualification. This goes some way in supporting why Ireland scores so well in the IMD World Competitiveness Rankings, where it is in first place in several important categories, and in the top five in others.
There is also a strong-track record - Ireland is already home to top companies across diverse business sectors including technology, pharmaceuticals, industrial automation, aircraft leasing and financial services. When many of these companies first set up in Ireland, they employed small teams - however, their experience of Ireland has been so good that they are now very significant employers. Businesses looking for evidence of an appealing environment take great comfort in that existing infrastructure.
And finally, Ireland can offer a very transparent and attractive tax regime which is available to all companies large or small. It makes no difference whether Irish-owned or foreign-owned – the same rules apply to all.
Specifically, Ireland has a standard rate of corporation tax of 12.5% for all trading income, the lowest rate in Western Europe. Trading has a very broad definition and covers just about every type of active business, from manufacturing and aviation to treasury. Other non-trading or passive income is taxed at 25%. Notably, Ireland has also entered into tax treaties with more than 74 jurisdictions, which eliminates double taxation, and also boasts an impressive array of measures to remove withholding taxes on many kinds of international payments under both domestic laws and EU directives.
Specialist
Ireland has carved out a specialist niche in supporting companies with their IP requirements specifically, for a number of compelling reasons.
First, IP has a very broad scope. Apart from the obvious examples of patents, trademarks and copyrights, it also includes such things as customer lists and business 'know how', and Ireland has gained significant experience in these areas over a period of time.
In addition, tax relief is granted where an Irish company buys IP from a related company or a third party, at a fair market valuation. This relief is granted by allowing the capital expenditure incurred on the acquisition of the IP to be deducted from the trading income generated by the same IP (e.g., royalty income) over a number of years, until the full purchase cost of the IP has been deducted.
The only restriction is that the maximum amount of trading income that can be sheltered in any year is 80% of the income received. However, any amount that can’t be used in one year can be carried forward for use against future IP trading income until, ultimately, 100% of the purchase cost is deducted. This is a very attractive proposition for companies seeking an alternative location to hold their IP, and typically results in an effective tax rate of 2.5% on qualifying income.
Further, a research and development (R&D) tax credit of 25%, rising to 30% from 1 January 2024, means that if an Irish company carries out R&D anywhere in the European Economic Area (EEA) and, for example, spends €500,000 in 2024 or in subsequent years, it will be able to reduce its tax liability by €150,000. However, as R&D costs are themselves usually tax deductible, the effective rate of tax relief is 42.5% i.e., the 30% credit and the 12.5% tax saving from the deduction of the expense.
Additionally, if this R&D subsequently creates an income stream, the tax rate on this income may be taxable at a rate of between 6.25% and 10% under the Knowledge Development Box regime.
This effectively means that where a company performs research in Ireland, develops IP and then commercialises the IP, there is tax relief available at all stages of the process. This offering is truly competitive.
Attractive
In conclusion, Ireland has positioned itself as a highly attractive jurisdiction for protecting and managing the IP of ambitious, innovative companies.
Its combination of a stable, business-friendly environment, a simple tax regime, location at the gateway to Europe, and specialist expertise in IP is highly appealing, at a time when IP is increasingly at the forefront of company growth strategies.
