Expanding Your Business in Ireland: An Attractive UK Alternative
By Katie Davies, Senior Director Advisory Services
The United Kingdom, with its affluent domestic market, highly educated workforce, and a shared language, is among the most popular destinations for American businesses expanding overseas. But right next door, Ireland offers those same advantages along with an aggressively pro-business government and a favorable tax structure.
Take Advantage of a Killer Business Environment
Beginning in the mid-1990s, Ireland began a period of strong growth on the back of low tax rates, relatively low labors costs, and its European Union membership, earning it the nickname “the Celtic Tiger.” But in 2008, Ireland experienced a real estate bubble collapse even more catastrophic than that in the U.S., and its economy shrank by 7 percent in 2009.
But the battered tiger is determined to claw its way back to strong growth, often in ways that can benefit your business. In 2010, the government began exempting employers who create new jobs in the country from paying some social insurance taxes. Its economic plan for 2013 will replace that program with one that pays 25 percent of employers’ costs for recruiting the long-term unemployed.
Even the precipitous fall of Irish real estate value from inflated pre-crash levels has had a silver lining. One eBay employee who left Ireland before the crash but returned last year told Bloomberg, "Back then, there was no way we could have afforded a house… Dublin is back within our reach."
Expect the immigration process to become smoother in 2013 as well. Measures begun in 2012 that will lower hurdles for work permits and visas — both for transferred employees and business travelers — will be given high priority this year.
Perhaps most importantly, the tax rate on most corporate income in Ireland is 12.5 percent. Compare that to the headline rate of 26 percent in the UK, which while subject to specific eligibility, is in turn below that of most European countries. In Germany you’ll pay 30-33 percent, and in France your rate will be 34.43 percent. The U.S. by comparison, is at the top of the list with an official rate of 39.5 percent.
But Avoid Google’s Missteps
Many firms already eying the UK or already maintaining offices there have seen the advantage of complementing that component of their business by setting up operations in Ireland. But Google has landed itself in hot water lately for giving the impression of improperly juggling its Irish and English operations to gain an unfair tax advantage.
Because of Ireland’s attractive tax rates, Google claims that its revenues generated from the UK actually come from sales conducted by its Dublin office. Under this system, Google generated $18 billion in revenue from the UK between 2006 and 2011. Yet its UK operations managed to pay only $16 million in taxes over that period.
Google says its employs about 1,000 people in London to educate potential customers about its products but not to make sales, which it claims are handled in Dublin. But Reuters found that the company was recruiting employees in London to “close” deals and that over a hundred of Google’s London employees claimed to take part in the sales process on their LinkedIn profiles. And in a poll conducted by The Drum, a marketing industry publication, 80 percent of Google’s UK clients that responded to the magazine said they believed that the advertising they bought was being handled by the London office, compared to 14 percent who believed it was being handled by the Dublin office.
As England’s economy struggles and the country feels the bite of austerity, the issue of improperly avoiding taxes has become politically potent. In the wake of the revelations, Parliament has summoned the tech giant to testify about its practices. It’s unclear what price Google will ultimately pay for what looks like tax-dodging, but you’re safer steering clear of the political, public relations, and financial morass it seems to have stumbled into. When taking advantage of Ireland’s business environment and integrating your Irish office with your other operations, make sure you understand how to comply fully with all relevant laws — then, reap the rewards.
For more information on business expansion into Ireland and Europe, register for our webinar: Doing Business in Ireland: A Gateway to Europe
Ready to Plan Your European Invasion? Check out our Raduis presentation on expanding on the continent.
Get the details of Ireland’s plans for immigration reform.