Principal Agency Structure
Ireland in recent years has emerged as suitable jurisdiction for companies to be based whilst acting in commercial transactions. There are a number of structures available which allow an Irish entity to be used in worldwide commercial transactions while minimising the exposure to Irish tax.
An Irish company acts as an agent for an overseas company in respect of trading activities, including the supply of services. The Irish company is used to provide administrative services to the overseas company.
Irish Company acting in an Agency Structure
An agency agreement is effected between the two companies whereby the Irish company (“Agent”) is appointed as an agent to transact the purchase and sale of goods or services on behalf of the overseas company (Principal).
The key features of the agency agreement are as follows:
The Principal instructs the Agent for all action required to be taken.
The Agent can place orders, enter into commitments, obligations and liabilities of any description with third parties in the course of normal business.
The Agent is authorised to issue invoices with its VAT number if applicable. The Agent may also sign documents and handle funds.
The Agent may carry out the duties in its own name and does not need to disclose to anyone that they are acting as agent for and on behalf the Principal, except as required by law.
The Agent will be entitled to fees for its services equal to 5% of net profits generated from the transactions. However it should be noted that there is limited transfer pricing legislation in Ireland, so depending upon the level of trade it may be possible to adjust the 5% suggested margin for the Irish Agent company.
The Agent is subject to Irish tax on the fee received for providing administrative services less its running costs.
Ireland has a low corporation tax rate of 12.5%. However to benefit from the trading rate, there must be substance in Ireland and evidence of trade. This is not possible for an Irish company acting in an agency structure as the trade is undertaken outside Ireland, and the Irish company has no substance in Ireland i.e. offices, employees etc. Consequently the profits of the Irish company are chargeable to tax at the non-trading rate of 25%.
The Agent and Principal are not partners nor joint venturers.
The Principal fully indemnifies the Agent against all liabilities and claims.
Consideration of using Ireland
In order for an Irish company to obtain a VAT number the Irish company must be able to show that it undertakes some trading activities in Ireland and has substance in Ireland ie a manned office. Therefore in order for an Irish company to obtain a VAT number we can adapt a standard agency structure, but consideration should be taken of the cost of putting in place the required substance and the Intra-Irish trade.
Certificate of Tax Residence
Even though the Irish company is acting on an agency basis, it is possible to obtain a certificate of tax residence from the Irish Revenue to confirm that the Irish company is resident in the Republic of Ireland for taxation purposes.