The Irish Agency company is commonly used to facilitate international
business and is able to avail itself of a comparatively low rate
of Corporation Tax (12.5%). An Irish Company is also able to trade
freely throughout the European Union, is able to utilize a European
VAT number and is not subject to Withholding Tax from other EU
Countries.
The concept of an Irish Agency Company is that it acts on behalf
of a Principal who may be located in an offshore jurisdiction.
The Principal engages the Irish Company to carry out specific
trading activities that it would ordinarily not be able to carry
out itself, such as the provision of goods or services within
the European Union or possibly due to the inhibative high costs
of setting up their own physical operation with the European Union.
The Principal will engage the Irish Company through a formal Agency
Agreement that clearly defines the role of the Irish Company within
the trading structure. Also defined within the Agreement are the
fees, or percentages of profit, that the Irish Company will collect
for the execution of its role along with any additional provisions
that may be agreed.
The fee charged by the Irish Company should be a suitable commercial amount that reflects the responsibility undertaken by the
Irish Company on behalf of the Principal. This fee will be retained by the Irish Company to cover its own operational and administrative
costs. Thereafter, any remaining funds in the Irish Company's bank account will be subject to Irish corporation tax. An acceptable fee,
chargeable by the Irish Company would be between 5-10% of gross turnover or profit, whichever is the greater.
If trading occurs within the European Union, the Irish Company will be obliged to register for VAT, the rate presently stands at 21%.
The inherent benefit of VAT registration when trading within the EU means that the Irish Company, reflecting its VAT number on its issued
invoices and indicating the buyers VAT/IVA number on the same, results in no VAT being levied on the value of the goods as the buyer
will account for the VAT in their own country of registration.
Operational Case Study
The Irish Company enters into agreements, on behalf of the offshore
principal, to buy leather hand bags from an Italian manufacturer
and supply the same to an Spanish retail group.
The Italian company will invoice the Irish Company for the market
value of the hand bags, quoting their respective VAT number and
reflecting the Irish Company’s VAT number on their invoice,
thus zero rating the supply and VAT charge.
The Irish Company in turn will request that the goods are delivered
to a Freeport where they will take title of the goods and onward
ship, without importation into Ireland, the hand bags to Spain.
At this time the Irish Company will issue an invoice to the Spanish
retail group, again reflecting the Irish Company’s VAT number
and that of the Spanish Company, in order to zero rate the supply
for VAT purposes. The hand bags are thus delivered with all documentation
reflecting the Irish Company and not the original supplier, nor
the offshore principal.
Once the goods have been received and accepted in Spain, the Spanish
retail group will pay the invoice received from the Irish Company
direct into the bank account provided by the Irish Company.
On receipt of the funds, the Irish Company will in turn settle the
invoice received from the Italian Company. The remaining funds,
less the agreed fee for the UK Company, will be remitted to account
specified and provided by the offshore principal.
Potential
Issues
It is advisable that this structure is not utilised for domestic trading
in Ireland, as this would generate a Irish tax liability,
due to Irish source income on the entire turnover and profit margin,
thus the entire profit would be taxable at 12.5% and the structure
would be of no use.
It is also recommended that the Directors and shareholders of the
Irish Company and Offshore principal are not connected, as well
as the majority of the board of directors are not Irish resident.
However, it is required that at least one Director is resident in
Ireland. Irish persons can hold no more than 25 directorships.
It is understood that any agreements that the Irish Company enters
into on behalf of the offshore principal should be signed outside
of Ireland and by one of the non-Irish directors.
As it is a requirement for the Irish Company to file annual accounts
reflecting its fee received from acting as an agent on behalf of
the offshore principal, it may be deemed that the client has established
both the Irish and offshore companies for the same purpose; hence
as there is deemed common ownership, this arrangement can be disclosed.
A solution for this issue is as follows:
1. Have the shares of the offshore company owned by an offshore
discretionary trust or foundation, hence there is no connected party
link between the offshore company and the ownership of the Irish
Company.
2. Client establishes their own Offshore Company and engages the
services of GTA’s in-house Irish Company to act as agent,
thus no common ownership or connected party issues.
Clients wishing to take advantage of the favourable tax regime
available in Ireland are requested to contact our Isle
of Man or London
offices.
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