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Taxation in Ireland
After the financial crisis of the 1980s, the state gradually began to expand the corporate tax base. Between 1982 and 1986 some restrictions on tax-based funding were introduced. Then there was a general shift in industrial policy in the late 1980s and early 1990s that broadened the corporate tax base. Irish corporate tax is generally levied on worldwide profits. It is made up of taxable profits and income from companies based in the country. Foreign companies, on the other hand, are subject to corporation tax on their creditable profits.
Ireland has a specific corporate tax law that includes four basic tax expenditures aimed at achieving specific policy objectives: the Knowledge Development Box (KDB), the Development Tax Credit (R&D) which is intended to cover the company's Research and Development Spending (BERD) to increase. However, partnerships, such as the self-employed or sole proprietorship, cannot be subject to corporation tax. This means that profits and profits from the businesses of the companies are considered income taxable income.
Ireland's tax system is progressive, which means that the higher the income, the higher the tax rate on that income. The data collected last year (2016) show (Publicpolicy.ie) that the tax paid by a person on half-average income is the second lowest in the OECD (34 countries in total), for example 1/10 of the Danish rate.
Types of Taxes in Ireland
Ireland has several types of taxes: an income tax, a value added tax (VAT), corporation tax and also the Universal Social Charge (USC) on your earned income and earnings-related social security (PRSI).
A tax on company income imposed by Ireland’s authorities was approved since the establishment of the Irish Free State in 1922. There is also an Article 74 of the Constitution of the Irish Free State stating regulations for transitional provisions related to collection and imposition of taxes that were imposed previously under the British administration in Ireland.
The common corporate tax rate qualifying dividends from EU and tax treaty territories is fixed at 12.5%. However, corporate tax of 25% is imposed on all passive incomes. Companies may be subject to other taxes though. For example, stamp duties on the transfer of property – the rate are 1-2%, local property taxes with the rate of – 0.18-0.25%. There are also industry-specific taxes established in the country. For example, it can be a shipping tonnage tax or construction operations tax.
In addition, there is a special tax which applies to certain petroleum activities, depending on the profit yield of a site. Therefore, the applicable tax rate can range 25%- 40%. Another example is a carbon tax which is applied on mineral oils such as kerosene or auto fuels, which can be purchased in Ireland. The rates of such taxes are equal to EUR 20 per ton of CO2 emitted.
VAT in Ireland can be referred to as a consumption based tax assessed on the value added to available goods and services which can be applied to almost everything that country offers and sells for use or consumption. VAT tax rate applicable in the country is 23%. However, there can other tax rates depending on the type of goods or services provided.
Every person living in Ireland must pay his or her worldwide income taxes. The basic condition is living in Ireland for 183 days or more during one tax year or for 280 days or more during the tax year and the previous tax year. If less than that, then a person is not considered tax resident and shall only pay taxes on income earned in Ireland. Tax rates for incomes are: up to 33 800 EUR – 20% and over 33 800 EUR – 40%. There is a special Pay As You Earn (PAYE) system established in the country governed by Irish Tax and Customs office.
Pay Related Social Insurance (PRSI)
PRSI payments can be considered as a part of the Social Insurance Fund (SIF). This fund provides help by paying for Social Welfare benefits and pensions. It shall be paid by all employed residents except those who are earning 38 EUR or more per week by doing full-time or part-time job, workers who are self-employed and their annual income is 5,000 EUR a year or more and persons who are 16 years old or over or are under pensionable age.
Universal Social Charge (USC)
USC is referred to as a tax which must be paid on person’s total income. However, there are some types of income that are exempt. For example, an individual can pay USC at the standard rate or the reduced rate, depending on the circumstances. Reduced rates of Universal Social Charge apply to those individuals who are aged 70 or older or hold a Medical Card which is full, if a person reaches the age of 70 or holds a full medical card at any time during the year, having total income of 60,000 EUR or less otherwise the standard rates of UCS shall be applied to incomes.