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6.6. Excluded and Segregated Income

Dividends

Dividends between Irish resident companies are exempt from corporation tax.

Dividends received by an Irish company from a non-resident company are ordinarily subject to tax at the higher 25% corporate tax rate for non-trading income. The dividends can be eligible for the 12.5% corporate tax rate on trading-income, if paid from trading profits and a number of other conditions are satisfied.

In any case, Irish tax on the foreign dividends received from a 5% or more subsidiary are often substantially, if not fully, mitigated by a credit for both foreign underlying tax and foreign withholding tax. Subject to conditions, credit may even be available with respect to the tax suffered by lower tier subsidiaries. Excess credit over the Irish tax liability on the dividend receipt may be used against Irish tax on other dividend flows. The balance may be carried forward for use against future dividend flows. Foreign tax suffered typically may not create a tax loss in Ireland. See Sec. 7. for details.

See further Sec. 10.1. for the holding regime.

Capital Gains

Capital gains realized by a resident company are normally subject to tax at the rate of 33%. However, capital gains realized on substantial participations qualify for a full exemption. In order to be eligible for the exemption, three conditions must be met:

  • The shares sold are in a company resident for tax purposes in an EU Member State or a tax treaty country;
  • The seller must have held at least 5% of the ordinary shares in the EU or tax treaty subsidiary (and have been entitled to at least 5% of the profits available for distribution and assets available on liquidation) for a continuous period of at least 12 months at the time of the disposal (or ending within two years of the disposal); and
  • The subsidiary whose shares are sold qualifies as a trading company (by reference to Irish rules). Alternatively, this test is deemed to be met if the Irish seller and each of its 5% subsidiaries, and the divested EU or tax treaty company and each of its 5% subsidiaries, together form a trading group. A trading group is deemed to exist for these purposes if the aggregate business of all entities included in the group consists for more than 50% of trading activities.

Note that non-residents without a branch or PE in Ireland are generally exempt from capital gains tax on the disposition of Irish shares, with the exception of gains on unlisted shares deriving the greater part of their value from Irish land, minerals or exploration rights.

Section 980 requires the purchaser of certain assets to deduct and pay 15% capital gains tax unless the vendor produces a clearance certificate. This section applies to assets over EUR 500,000 in value (from 2003 onwards) and, usually, though not exclusively, arises in context of land/property sales

Disposals of assets by bodies which carry an exemption from capital gains tax (CGT)

Section 980 will not apply to a disposal of an asset by a person where any gain accruing on the disposal would not be a chargeable gain. Examples of such disposals in the TCA are:

  • A disposal by a pension fund or arrangement carrying an exemption from CGT under section 608(2) or (2A).
  • A disposal by an investment undertaking within section 739C.
  • A disposal by a charity to which section 609(1) would be applicable.
  • A disposal by the National Asset Management Agency (NAMA) or by any other body specified in Schedule 15.

Sales by financial institutions of loans secured on land in the State

Section 980 will not apply to the sale by a financial institution of loans secured on land in the State where the sale arises in the ordinary course of the carrying out of its trading activities. In other words, the section will not apply to the sale of such a loan by a financial institution in circumstances where any profit on the sale would be treated as a trading receipt of its trade.

However, in regard to loans secured on land in the State:

  • In general, such loans are interests in land for the purposes of section 980; and
  • In general, such loans are securities for the purposes of that section.

It follows, therefore, that the provisions of section 980 will have application where the sale of such a loan would be a disposal for CGT purposes.

Windfall Gains Tax

This is a tax of 80% for disposals of development land (where both a rezoning and a disposal took place on or after 30 October 2009). As of 1 January 2015, however, these profits are taxed at the standard rate of CGT (33%).

Local Income Taxes

Ireland does not impose any local or regional taxes on income.