FDI and the Irish Economy
Ireland is the leading onshore European Union (EU) Organisation for Economic Co-operation and Development (OECD) white-listed location for Foreign Direct Investment (FDI), and 2015 was a record year for FDI into Ireland.
Ireland was identified as the number one destination for U.S. foreign direct investment in a 2014 report commissioned by the American Chamber of Commerce in Ireland.
The Irish economy is enjoying a period of renewed growth. Gross Domestic Product (GDP) rose by 5.2 percent in 2014 and by an estimated 6 percent last year. The biggest driver of Ireland’s economic success is FDI. As the most globalized country in the western world, Ireland’s export industry is thriving, which is not surprising given some of the following independent analysis:
– “In the top five best countries to do business” – Forbes Magazine 2014;
– “Number one in the world for investment incentives” – IMD World Competitiveness Yearbook 2014;
– “Best place to invest in Western Europe” – Site Selection magazine 2014;
– “World’s most globalised country” – KOF – Globalisation List 2015;
– “In the top 10 most innovative countries in the world” – (2015 Global Innovations Index (GII));and
– “World leader in attracting high value FDI projects” – IBM Global Locations Trends 2015.
The figures speak for themselves:
- U.S .companies have invested €240bn in FDI in Ireland;
- 130,000 people are employed in U.S. companies in Ireland. Those companies have invested more than $277bn in Ireland since 1990;
- U.S. companies in Ireland export over $80bn in goods and services annually (4 times more than US Companies in China);
- US FDI in Ireland increased by 42 percent in the first nine months of 2014 to $37bn. During the same period, total investment to Europe fell 19 percent to $115 billion;
- Research & Development (R&D) outlay by U.S. affiliates in Ireland more than doubled between 2000 and 2012 from $465 million to $1.5 billion; and
- U.S. assets in Ireland total $1.2tn.
So it’s easy to understand why Ireland is home to:
– Nine of the world’s top 10 pharmaceutical companies;
– Nine of the world’s top 10 global software companies;
– 13 of the world’s top 15 medical technology companies;
– 60 percent of the world’s top financial services companies; and
– Management of 50 percent of the world’s fleet of leased aircraft.
Industrial Development Authority Ireland, the Irish State Agency responsible for stimulating, supporting and developing export led business and enterprise in Ireland, approved 110 investment projects in Ireland in the first six months of 2015.
Some recent FDI announcements include:
- Apple will be expanding its campus in Hollyhill, County Cork, and adding a new building for 1,000 additional employees by mid-2017;
- Google has begun construction on a new €150 million Data Centre at Profile Park in West Dublin;
- Huawei has opened its newest Ireland R&D office in the center of Dublin’s Digital Docklands, creating 50 new R&D jobs, bringing to 120 the total number of its R&D employees in Ireland;
- LinkedIn Ireland surpassed its 1,000 jobs milestone as it celebrates its fifth anniversary here;
- Citi officially opened the Citi Accelerator Hub in June 2015, an office space located in Citi’s Dublin offices for Fintech startups;
- GE Healthcare’s $40m investment is set to double manufacturing in Carrigtwohill in County Cork;
- Uber is to invest €4 million in Limerick, creating 150 jobs by the end of 2015; and
- Bluefin Payment Systems will establish a Technology & Operations Centre in Waterford City, creating 40 new jobs over the next three years.
So What Makes Ireland So Attractive?
- European Market access: Ireland is an EU member state and is the only English speaking Euro currency zone member, giving it access to a market of over 500 million consumers and reducing exchange rate risk on trade within the Eurozone.
- Track record: Ireland has strong and long standing trade links to the U.K. and the U.S
- Corporate tax rates: This has been a core component of the favorable enterprise environment in Ireland for over three decades. The Irish tax regime is open and transparent and complies fully with OECD guidelines and EU competition law. Ireland’s 12.5 percent corporate tax rate on trading income is the lowest onshore statutory corporate tax rate in Western Europe. In addition, Ireland has signed comprehensive Double Taxation Agreements with 72 countries, of which 68 are in effect. Dividends received by an Irish holding company from companies resident in these “treaty countries” are taxable at the 12.5 percent rate. The new Knowledge Development Box, which took effect on January1, 2016, is one of a suite of measures designed to incentivize companies to develop new technology in Ireland. It provides for a 6.25 percent corporate tax rate for income generated from commercializing certain intellectual property.
- Holding company regime: Ireland offers an attractive regime for holding companies locating here, and for their shareholders. Many leading global companies, and private equity/wealth funds, have chosen to relocate their headquarters to Ireland. Holding company drivers include: (i) exemptions for Irish tax resident holding companies from Irish tax on capital gains realized on disposals of qualifying subsidiaries; and on dividends received from other Irish resident companies; (ii) favorrable treatment of foreign dividend income; (iii) generous exemptions from Irish withholding tax on dividends and interest payments made to non-Irish residents; (iv) no thin capitalization rules which allow an Irish holding company to be debt financed; (v) no “controlled foreign company”, or “sub part F” rules means that the profits of a foreign subsidiary of an Irish holding company are not taxed in Ireland unless they are repatriated to Ireland; and (vi) generous reliefs for costs of acquiring IP and other intangibles.
- Skilled labor force: Ireland has a skilled, multi-disciplined and English speaking workforce. Ireland was ranked first in the world for availability of skilled labor and for flexibility and adaptability of workforce by the International Institute for Management Development (IMD) World Competitiveness Yearbook 2015. According to Eurostat 2014, Irish labor costs have remained relatively stable since 2008.
- Ease of doing business: A company can be incorporated within five business days. Business tax registration can be arranged by submitting one form to the revenue commissioner, and there are a number of different financing options available.
- Stability: Ireland has a strong legal and regulatory framework that supports business. Ireland is a common law jurisdiction. Its legal concepts will be recognized and understood by most foreign investors, including U.S. multinationals. Ireland’s courts system is efficient and pro-business. The Irish Commercial Court, a specific division of the High Court deals quickly with commercial disputes over €1 million or disputes involving intellectual property.
- Investment incentives: The Industrial Development Authority offers various incentives to international companies choosing Ireland as their European base. To date it has partnered with 1,150 entities in establishing and expanding their Irish presence. Some of these incentives include: exemptions for certain start-up companies from tax in each of their first three years; R&D tax credits; 100% allowance on capital expenditure incurred on scientific research; and the Special Assignee Relief Programme (SARP) which offers a reduction in income tax to qualifying employees who relocate to Ireland.
So, 2015 was a record year for FDI in Ireland. Industrial Development Authority client employment reached its peak at 187,056. And the Industrial Development Authority has set lofty targets for the next five years including the creation of 80,000 new jobs, 900 investments, and €3 billion R&D investments. There has never been a better time to invest in Ireland.
Dominic Conlon is the head of Leman Solicitors’ corporate department. He specializes in financial technology (or Fintech), and he has advised many of Ireland’s largest financial institutions, corporations and technology companies over the last 20 years.
This publication is for guidance purposes only. It does not constitute legal or professional advice. No liability is accepted by Leman Solicitors for any action taken or not taken in reliance on the information set out in this publication. Professional or legal advice should be obtained before taking or refraining from any action as a result of the contents of this publication. Any and all information is subject to change.