Corporate Treasury & Cash Management in Ireland
Corporate Treasury & Cash Management in Ireland
Ireland's economy is driven by high-technology industries and the services sector, while it has successfully positioned itself as an investment location. The 2021 Index of Economic Freedom ranked Ireland fifth in the world and first in the European Union (EU).
Ireland also has one of the youngest populations among EU countries. More than one-third of its population is under 25 years old, providing it with a significant labour force compared to neighbouring countries.
Ireland has pro-business policies and a stable tax regime, including tax treaties with more than 70 countries and territories. Other benefits include no exchange controls, and a wide range of business grants and support. Ireland has also established technology parks in several major cities to host advanced manufacturing projects and boost innovation. Its main export partners are the US, Belgium, and Germany.
Corporate Treasury in Ireland
Ireland is one of the founding members of the EU. Its economy is focused on high-technology industries and the services sector. In this section, we highlight some of the key factors relevant to treasury and cash management in Ireland.
Financial Market Development
- Dublin is ranked 48th in the 2021 Global Financial Centres Index by Z/Yen Group.
- Ireland is positioning itself as an alternative European financial centre, following the United Kingdom’s (UK) exit from the EU.
- Ireland has good business infrastructure, a highly educated English-speaking workforce and a sound legal environment.
- There are no foreign-exchange controls in Ireland.
- Enterprise Ireland, the Irish Government’s trade and innovation agency is the world’s second biggest financial technology (fintech) investor by deal count. The Central Bank of Ireland also operates an Innovation Hub, enabling fintech firms to engage with it outside of formal regulatory processes.
Sophistication of Banking Systems
- There are around 25 domestic banks and more than 30 branches of foreign banks in Ireland.
- Ireland has a well-developed debt market with a wide range of both government and corporate bonds available. Outstanding debt securities were valued at USD1,018 billion at the end of December 2020.
- The banking industry is regulated by the Central Bank of Ireland. As a eurozone country, it is also covered by the Single Supervisory Mechanism Regulation and the European Central Bank.
- The corporate income tax (CIT) rate is 12.5%. A higher rate of 25% is charged on: interest, rents, royalties, business conducted wholly outside of Ireland, income from land dealing, mining and petroleum extraction and non-trading (passive) income, including dividends from companies that are tax resident outside of Ireland. An additional profit resource rent tax of 25% to 40% applies to certain petroleum activities.
- Resident companies are subject to tax on their worldwide income. Non-resident companies are taxed on trading profits of an Irish branch or agency and certain Irish-sourced income. There is no branch profits remittance tax on the repatriation of profits to the head office by the branch of a foreign company.
- The standard rate for Value Added Tax (VAT) is 23%, with certain goods and services qualifying for a reduced rate of 0%, 9%, or 13.5%, while others are zero-rated or VAT exempt.
- Capital gains are taxed at 33%, with rates of 25% or 40% charged in certain circumstances. Some exemptions are available.
- Interest income is taxable at 25%. Interest expenses can be deducted if the borrowing is used for trade or certain non-trading assets.
- Stamp duty is charged at 7.5% on the transfer of non-residential property, including commercial/industrial land or buildings, as well as on business assets such as goodwill, debtors and contracts. A rate of 1% applies for the transfer of shares.
- Ireland offers favourable tax treatment for cash-pooling activities. Under a typical cash-pooling arrangement, interest payments by the Irish cash-pool leader typically constitute ‘short’ interest for tax purposes. Tax deductions for interest payable to a group company resident outside of Ireland are available.
- A corporation tax rate close to zero is available for entities known as 'Section 110' companies, namely Irish-resident special-purpose companies that hold and/or manage qualifying assets and meet a number of conditions.
- For resident companies, withholding tax (WHT) is charged at 25% on dividends and 20% on interest. Non-resident companies, where there are no tax treaties in place, are charged WHT of 25% on dividends and 20% on interest. Where a tax treaty is in place and the non-resident can provide the Certificate of Residence, rates range from 0% to 15% on both dividends and interest. WHT exemptions are available.
- Ireland has tax treaties with more than 70 countries and territories.
- Ireland is a signatory to the Organisation for Economic Co-operation and Development's Multilateral Competent Authority Agreement, through which information is exchanged between tax administrations to provide a single, global picture on some key indicators of economic activity within multinational enterprises.
Benefits for Regional Treasury Centres
- Ireland is a popular location for cash pooling and treasury activities due to its low corporate tax rate and favourable tax treatment for cash-pooling activities.
- Corporate treasury activities may be structured as stand-alone or agency operations.
- Ireland is a popular location for shared-service centres due to its highly skilled English-speaking workforce and strong government support.
- Most forms of cash concentration and notional pooling are available in Ireland on a domestic and cross-border basis.
- Ireland is a eurozone country with trading hours that overlap with Asia, Europe and North America.
- Residents and non-residents may hold foreign- and domestic-currency accounts both domestically and overseas. Domestic-currency accounts are fully convertible into foreign currency.
- Interest is not available on all current accounts.
Legal and Regulatory
- The Central Bank of Ireland is an autonomous institution and a member of the European System of Central Banks (ESCB).
- The European Central Bank (ECB) supervises banks within the eurozone that are regarded as 'significant' through the Single Supervisory Mechanism (SSM), while other 'less significant' eurozone banks are supervised by the respective national central bank, such as The Central Bank of Ireland.
- A company is resident if it is incorporated in Ireland or is effectively managed or controlled in Ireland.
- Ireland has anti-money laundering and counterterrorism financing legislation in place and follows EU anti-money laundering directives.
- Ireland has set up a financial intelligence unit, An Garda Siochana/Bureau of Fraud Investigation (GBFI), which is a member of the Egmont Group.
The Payment Services Directive (PSD2), which is law across all EU Member States, provides enhanced consumer security in the developing fintech environment i.e., for electronic payments, such as mobile payments, credit transfers, online payments and direct debits.
- Prohibition of surcharges on credit/debit card payments.
- Imposition of strict security requirements, including the protection of financial data.
- Increased competition between European payment service providers.
- Greater consumer rights, such as ‘no questions asked’ refunds on direct debits in euros.
|Trans-European Automated Real-time Gross Settlement Express Transfer system (TARGET2)||Real Time Gross Settlement (RTGS) for the eurozone|| |
|STEP1||Pan-European net settlement system|| |
|STEP2||Pan-European Automated Clearing House (PE-ACH)|| |
|Single Euro Payments Area (SEPA)||Pan-European payment infrastructure|| |
|SEPA Instant Credit Transfers (SCT Inst)||Pan-European instant payments system|| |
|SEPA Direct Debits (SDD)||Pan-European direct debit system|| |
|RT1||Pan-European real-time EUR credit transfer system|| |
|EURO1||Pan-European RTGS-equivalent net settlement system|| |
|Irish Paper Clearing Company Ltd (IPCC)||Paper-based and cheque-clearing system|| |
- Can be automated or paper-based, although the large majority of credit transfers are automated. Credit transfers are increasingly used, as paper-based payments are in decline.
- High-value and urgent transfers are settled through TARGET2 in real time.
- Low-value and non-urgent SEPA transfers are settled within the same day through STEP2.
- The SCT scheme is used for retail transactions and is available for urgent and high-priority payments (no maximum threshold) within the SEPA.
- The SEPA Inst scheme is used for urgent transactions up to a maximum of EUR 15,000 and is available to consumers, businesses and corporations within the SEPA and SEPA-participating countries.
Direct Debits (auto debits)
- Used for low-value, regular transactions such as utility bills.
- The SDD scheme is used for urgent and high-priority retail payments (no maximum threshold) within the SEPA. It is mandatory for all banks in the eurozone to offer SDD facilities, and banks outside of the eurozone are required to accept SDD transactions.
- SEPA SDD transactions are cleared within the same day through STEP2.
- Payment card usage continues to recover from the COVID-19 pandemic, with EUR7 billion being spent in April 2021, which was 5% lower than that in March. Pre-pandemic, payment card use showed continued growth, especially debit cards (representing 74% of bank cards in circulation), largely driven by an increase in contactless payment facilities.
- The main payment card brands are Visa and MasterCard, with American Express and Diners Club credit cards also in circulation. All payment cards are SEPA- and Europay, MasterCard and Visa (EMV)-compliant.
- Clearing and settlement are handled by individual banks, which operate their own protocols.
- Credit card transactions are subject to stamp duty for Ireland residents, and there is a government fee imposed on automated teller machine (ATM) withdrawals. Both charges are collected annually by the card owner’s bank on behalf of the government.
- The Central Bank of Ireland regulates the financial sector, including the fintech industry. There is no specific fintech regulatory framework.
- The EU launched an ‘action plan on fintech’ that broadly sets out its approach, to be rolled out gradually. The areas of focus are: to encourage innovative business models; to support technological development in blockchain, artificial intelligence and cloud services; and to increase cybersecurity and protect the integrity of financial systems.
- Digital payments are increasing in popularity, with the most popular digital wallets being Apple Pay, Google Pay, Samsung Pay and PayPal.
- Ireland’s e-commerce market is worth over EUR7 billion; approximately 42% of that is mobile commerce.
- Cryptocurrency has become a popular investment option in Ireland. There is even an Irish cryptocurrency, Irishcoin, which is an open-source peer-to-peer cryptocurrency. Irishcoin is aimed at tourists and the Irish diaspora, and is used for low value transactions.
- There is no regulation in place for cryptocurrency, and the EU does not recognise cryptocurrencies as legal tender. The EU’s overall view of bitcoin is that “no member state can introduce its own currency”. Cryptocurrency exchanges are legal, depending on the country, and should be under the Anti-Money Laundering Directive, according to the European Commission.
- The Central Bank of Ireland has declared that in cases of initial coin offerings (ICOs), the question of whether tokens are “transferable securities” will be decided on a case-by-case basis.
- Capital gains tax law does apply to transactions involving cryptocurrencies in the event an individual earns a profit from buying or selling.
Cash, Cheques and Money Orders
- Cash remains the main form of payment for low-value transactions and the volume of ATM cash withdrawals has remained almost unchanged for over five years. However, the COVID-19 pandemic has seen a significant drop in withdrawals, along with a parallel increase in cashless payments.
- Cheques are a common form of cashless payment in Ireland, almost double the average usage in the EU. However, the volume of cheque usage dropped by 15% YOY in Q1 2020 to 6.6 million and is being fast outpaced by electronic transactions.
- Cheques are used for high-value, one-off and supplier retail and commercial payments.
- Cheques are cleared through IPCC and final settlement is done through TARGET2. There is a stamp duty of EUR0.50 levied on all cheque transactions.
- Remittances can be arranged at post offices via Postal Money Orders and Western Union for domestic transfers, and Western Union, Eurogiro and Sterling Draft for international transfers.
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Sources (Intro & Corporate Treasury):
World Economic Forum, Forbes, The Heritage Foundation, Bank for International Settlements, Central Bank of Ireland, PwC, DBS, OECD, CIA World Factbook, Trading Economies, IMF, CEIC, the World Bank.
Sources (Banking & Payments):
Eurostat, European Central Bank, The Association of Financial Professionals, Banking & Payments Federation Ireland, RTÉ.