Tax Corner: The tax obligations of expanding your business across the border

QUESTION: I currently own a small company in Northern Ireland and have recently opened a new office in the Republic of Ireland as part of my existing NI company. Can you explain if I have any current tax obligations in the Republic of Ireland and should I incorporate a new company there at a later date?

ANSWER: A company established in Northern Ireland will generally pay UK corporate tax on its worldwide profits. When a business expands its operations into other tax jurisdictions, in this case the Republic of Ireland, it will also be required to comply with tax obligations in that jurisdiction.

However, as there is a double tax treaty between the UK and Ireland, double tax relief would be available in the UK for any Irish tax suffered.

The current UK tax corporate tax rate is 19 per cent and the current Irish corporate tax rate is 12.5 per cent.

The liability to corporation tax in the Republic of Ireland will usually be determined by reference to whether or not your NI business has a permanent establishment (PE) there.

Generally, a business will have a PE in another jurisdiction if it carries on business (wholly or partly) through a ‘fixed place of business’ in that territory, for example an office or branch, or, if there is an agent in the territory acting habitually on the company’s behalf who is not acting in an independent capacity in the ordinary course of his own business.

It is important to note that a business would not be treated as having a PE if the activities carried on are merely of a preparatory or auxiliary character (e.g. storage, display, delivery operations or collecting information) and are not part of a fragmented business operation.

Assuming that you have a fixed place of business in the Republic of Ireland, you would have an obligation to register for corporate tax with the Irish Tax Authorities. In addition to this, consideration needs to be given to Irish PAYE and VAT obligations.

Broadly, your business would be taxed in the Republic of Ireland on the profits attributable to the PE. If a loss arises, this would be carried forward and offset against future PE profits.

The NI business would pay tax on worldwide profits in the UK and double tax relief claimed for any tax paid in the Republic of Ireland. As you will also have staff carrying out duties there, your business would automatically be required to also register for PAYE.

In respect to VAT, your company will need to be aware, that it is likely to trigger a registration requirement in the Republic of Ireland, if its turnover exceeds €37,500 for the supply of services, or, €75,000 for the supply of goods.

At a later date, should you wish to formalise your presence in the Republic of Ireland you may wish to consider incorporating the PE (branch) into a limited company.

There would be a number of key areas to be considered, for example, should you operate through a standalone Irish entity or should you consider setting up a subsidiary as part of your existing NI company to form a group of companies, tax registrations, tax exposure on incorporation of the branch, available tax reliefs, CRO obligations etc.

When considering the future growth and expansion of your business both the commercial and tax factors should be considered.

There are many similarities between having a standalone company and a subsidiary from a corporate perspective.

However, forming a new Irish entity as a subsidiary or as part of a wider group may facilitate better tax planning opportunities for you and your business as it grows. It is essential that adequate planning advice is obtained in respect to incorporating the Irish branch of your NI business into an Irish company.

One final point to note, there is a requirement for Irish companies to have at least one director resident in a member state of the European Economic Area (EEA). Following Brexit on 1 January 2021, Irish companies with NI resident directors would not be able to fulfil this condition.

However, there are three potential solutions to overcome this: Appoint an EEA resident director; or consider putting a bond in place to the value of €25,000; or consider if you could avail of the real and continuous link exemption (subject to conditions).

When considering any changes to your business structure, it is important that you reach out to your trusted advisor to ensure that all factors have been considered and you are not left exposed to any additional costs or tax charges.

Siobhan McCreesh (s.mccreesh@pkffpm.com) is associate tax director at PKF-FPM Accountants (www.pkffpm.com). The advice in this column is specific to the facts surrounding the question posed. Neither the Irish News nor the contributors accept any liability for any direct or indirect loss arising from any reliance placed on replies.