U.S. EXPAT TAX GUIDE – IRELAND
What must you know about owning an Irish company as a US citizen?
US citizens owning a company in Ireland experience a different economic and legal environment. An Irish company can be a limited company, partnership, or sole proprietorship, each with its own set of regulations.
Table of contents
What are the tax implications of owning an Irish company as a US citizen?
Owning an Irish company means the IRS wants more information from you about the company… you’ll likely need to file Form 5471, “Information Return of U.S. Persons With Respect to Certain Foreign Corporations.”
Form 5471 is a complex form and should be prepared by a US international tax professional.
Always file on time; otherwise, you can expect a $10,000 penalty for filing late.
Form 5471 reports information similar to a corporate tax return filed in Ireland. A tax professional will typically ask for the company’s financial statements, such as a profit and loss statement and a balance sheet as a minimum.
Form 5471 comes in different shapes and sizes (filing categories). Depending on the percentage of the shares you hold and the relationship you have with other shareholders will determine which parts of Form 5471 you are required to file.
If you own less than 10% of a non-US company and the other shareholders are not related to you and also are not US citizens, you don’t need to file Form 5471 – Foreign Corporation Return.
How does the Irish corporate tax system work?
Ireland’s corporate tax rate is 12.5% for trading income, one of the lowest in the EU, making it attractive for US expats. Additionally, Ireland offers a 25% Research & Development (R&D) tax credit for qualifying innovative activities.
From December 31, 2024, the Irish corporate tax rate is expected to increase to 15%.
However, fully understanding these benefits requires meeting specific conditions and proper documentation. This is why it is extremely important to seek advice from a tax professional.
What’s the difference between US and Irish corporate tax laws?
A key difference is the corporate tax rates: Ireland’s 12.5% (soon to be 15%) versus the US’ 21%. Another difference is in the treatment of foreign income. The US taxes worldwide income but offers foreign tax credits to prevent double taxation, while Ireland primarily taxes income earned within its borders.
Have you considered an Irish holding company?
An Irish holding company holds controlling stock in other companies. This structure benefits from Ireland’s low corporate tax rate and extensive network of double taxation treaties.
This means that dividends from foreign subsidiaries, including those in the US, can be received without withholding tax.
How useful is the double taxation treaty?
The US-Ireland Double Taxation Treaty prevents the same income from being taxed twice. It provides rules on which country has the right to tax different types of income and offers reduced withholding tax rates on dividends, interest, and royalties paid between the two countries.
What are the common challenges in owning an Irish company?
- Reporting Requirements: Extensive reporting is required by both the IRS and Irish Revenue.
- Differences in Tax Law: Navigating the different tax systems can be complex.
- Compliance with CFC Rules: Owning more than 50% of an Irish company means complying with US CFC rules.
- Currency Fluctuations: Operating in two countries involves managing exchange rate fluctuations.
- Managing Cross-Border Transactions: Cross-border payments come with additional fees and complexities.
- VAT Obligations: Properly accounting for VAT is crucial to avoid penalties.
Are there any tips for owning an Irish company?
- Understand the Double Taxation Treaty: Utilize the treaty for tax savings.
- Explore Irish Tax Incentives: Take advantage of incentives like the R&D Tax Credit.
- Keep Your Tax Planning Up-To-Date: Regularly review your tax strategy.
- Hire a Tax Advisor: A tax advisor familiar with Irish law can help you maximize benefits.
- Leverage Ireland’s Strategic Location: Use Ireland as a gateway to the European market.
- Consider the Benefits of a Holding Company Structure: A holding company can offer substantial tax benefits and access to an advantageous tax regime.
Why partner with a specialist Expat accountant?
Living outside of the US can make your tax filing requirements complicated. To ensure you pay the minimum amount of taxes, it’s critical to work with an accountant who understands every aspect and avenue for reducing your tax liability. We have a dedicated team of tax accountants who work exclusively with US expats earning and investing in Germany. Partnering with a specialist expat accountant can help you navigate complex tax regulations and optimize your tax situation.
