Trumped? Nope. Ireland to retain corporate tax advantage over the US Despite plans by president-elect Donald Trump to repatriate American multinationals' funds, Ireland's corporate tax advantage over the US is likely to persist. According to Stephen Moore, a senior economic advisor to Trump, Ireland will retain its corporate tax advantage over the United States, reported The Irish Times. In an …
Wait, can I, as an IT consultant that does 90% of my work remotely, set up a corporation in Ireland, move there, and only pay 12.5% tax? Because with just an LLC in 'Murica, I pay 50%, right off the top (35% income tax and 15% "self-employment tax" which is FICA and other crap)... there are ways to mitigate some of that... like form an s-corp and pay about 1/2 your income in dividends... that gets you to around 35% of your money going to income tax, without ruffling the IRS's feathers too much. But still, 12.5% is WAAAAY better... then again, you guys have VAT... bleh.
Dear Brandon,
Yes you can do that (for corporation tax purposes, and as you pointed out, move here to Ireland).
*However*: In Ireland, if you want to draw money out of the company, you must either be able to declare it as an expense (non-taxable) or as a salary / wage / income. That in itself attracts various different tax burdens, depending on full yearly income.
Depending on your situation, you pay a base rate of income tax of 20% on upto €42,800 annual income. Anything above that (or whatever the base amount is, depending on your situation), you will pay 40% tax.
In my situation, that means I pay 52% income tax, and 12.5% corporation tax on any profits I make.
What you can do, though, is route most of your invoices through Ireland, and have your US parent company suck in the money to the extend of your personal salary / wages. Pay that out, and then you have the best of both worlds: corporation tax low low in Ireland, and income tax low low in the US.
Hope this helps,
Regards,
Guus
Edit: Sorry Brandon, I missed your mention of "moving to Ireland". The following instead refers to setting up in Ireland for tax, but still working from the US, but I'll leave the comment up. Guus has answered your question accurately.
-------
Corporation tax *RATE* isn't necessarily the main draw for companies to solely use Ireland for tax purposes. It's a draw for companies to use Ireland as a genuine base, but those doing it exclusively for tax are using it for a different reason than the rate.
Rather, it's traditionally been due to weird incompatibility between Us and Irish/EU tax and IP licensing laws. In particular, different views on who should be taxed for income generated in different jurisdictions, which can be played off each other to say neither the US nor Ireland have any reason to deserve the tax.
These loopholes are slowly getting closed, so you may have missed the boat, but it would have been potentially a viable tactic for you, depending on the nature of your contracting work, had you considered this a few years ago. You'd want to have had substantial income though to cover the costs of the tax lawyers to set it up, as you'll need a couple of Irish companies.
As mentioned, you'll get hit for US tax when it gets repatriated, but if you only take a small fraction of your income back to the US to live off, and use the rest to buy tropical islands, then you're probably ok. Apple has billions upon billions in Ireland or Irish linked companies that it can't repatriate to its shareholders, due to the tax bill it will get. You would be in a similar boat.
VAT is sales tax. Just don't buy any goods or services in the UK and you'll be fine.
So here's what you do... set up an irish holding company and a subsidiary in the US.
You work for the subsidiary, and any net profits the subsidiary makes (i.e. after paying your salary) are negated by paying the bills for services provided by the parent company. Zero profit = zero tax.
When the parent company has significant financial assets built up, it can start loaning money to you or the subsidiary. It gives you the option to drive a company-owned Ferrari or live in a company-owned house and you/the subsidiary also gets tax relief on the interest payable to the parent company for the loan (that with your other hat on, you can decide the rate of).
Agreed.
Companies get their money by selling stuff, which we already tax using VAT.
Companies eventually pay their profits to people - either as wages, or dividends, or (if the company keeps the cash) as capital gains from an increased stock price. And we already tax people at that point - income tax and national insurance, dividend tax, capital gains tax. (Although I'd argue that the specialist taxes there should be abolished, and people should just pay income tax on the lot - that seems simpler and fairer to me).
So lets raise those other taxes a bit, and abolish company tax.
The reason corporate income tax was introduced was people were incorporating themselves.
Your personal services corporation gets paid for your freelance work, it buys a house-shaped office which it lets you live in and a car you drive. It also invites you to working breakfast, lunch and dinners every day and buys all the clothes you wear.
It doesn't however pay you, and with these generous benefits it never makes a profit - so nobody pays any tax.
That certainly wouldn't work in Ireland, the Revenue guys would be all over it. Anything that looks vaguely like a car is considered to be a benefit in kind (BIK) and subject to BIK tax (along with petrol and any other costs). Try sleeping in your office and they'll decide that you've been getting free accommodation, again subject to BIK tax. The only potential tax dodge is if you like having the latest and greatest tech toys then you can have your company buy them while you use them but that's not really a dodge if you're using that tech to carry out your trade (a bit like a carpenter getting the latest woodworking tools)
"It doesn't however pay you, and with these generous benefits it never makes a profit - so nobody pays any tax." -- Yet Another Anonymous Coward
I understand what you are saying, but surely this is a solved problem? If my employer supplies me with a car, or accommodation, or clothing that is neither protective nor uniform, surely that is a benefit-in-kind and taxable as salary whether my employer is a big multinational or my own personal services corporation.
Owning a business or two, corporation tax is a bloody imposition and is the case of double or even triple dipping on a company's money for tax purposes...
Tax is paid for the purchase of services or supplies. Tax is paid for the sale of services of supplies. This leaves a somewhat smaller amount of money from which operating expenses are paid, e.g. utility, staff, insurance and other costs.
Out of what's left a government will then arbitrarily decide to take, for example, 40% of it. Just because. There's no "we're saving for a rainy day", or "we're saving for a new factory or office", just a 40% grab of whatever's there. After which the company may pay shareholder's dividends - which are also taxed at source and the shareholder will likely pay tax as well.
In other words if, as a business, you want to save for anything you can't because the powers that be have decided that you must instead borrow the bloody money instead. At poor rates, and only if the lender feels that they can make an immediate profit and therefore may lend to you.
I do have some sympathy when corporations do their level best to not have all their profit swiped before even more taxes are paid. On the other hand, rules are rules, even if they are unfair and barely justifiable and as is the case with many things, it's the smaller players that tend to suffer.
"Tax is paid for the purchase of services or supplies. Tax is paid for the sale of services of supplies."
I don't know what tax regime you're in but this sounds very odd. Surely there's a single tax on the transaction whether it's called a sales tax, a purchase tax (UK old style) or VAT?
As to the rest, maybe you should have a word with your accountant. Or a new accountant.
Taxes are a game played between the finance minister and accountants. Our modern, sophisticated societies need reasonably high tax bases spread across all areas of economic activity. Actual rates are less important than the loopholes and exceptions which pit various theories against each other.
Apart from mopping up distortions from redesignating income, taxes on capital are also intended to keep money in circulation. It was discovered some time ago that letting too much capital accumulate anywhere causes all kinds of problems.
"like the only long term sustainable corporate tax rate is zero."
Not really. Look at it like this:
You're running the tax system for a country.
First of all, as another commentator has noted, zero corp tax allows anyone who can incorporate to pay no tax at all by doing so and thus avoiding income tax. So now you have to pick between high and low strategies.
Divide your potential tax base between local and multinationals. Local businesses have no option but to pay CT. Multinationals can choose and your strategy will determine what they do.
If you have a small country with a small* local tax base charging a high rate on not very much yields not very much from your local tax base. Charging a lower rate yields less but that's less than not very much so you're not losing a lot. But if your lower rate brings in a foreign corporation or two you're getting a low rate on humungously much which adds up to doing quite nicely in relation to your needs and your local businesses are also happy because they're not paying as much.
If you have a large country with a lot of of local businesses you still have the possibility of attracting multinationals by a lower tax rate but the gains of that risk being less than the loss of tax from the local businesses. You could also get involved in a race to the bottom which is of advantage to the multinationals and no-one else. You maximise your tax take by screwing as much as you can from the local tax base and let the multinationals go elsewhere.
People keep posting here saying that the Irish tax rates are screwing the Irish tax payers. They're not. They're indirectly screwing the US tax payers.
*Small in relation to the potential multinational tax base.
But only as long as they don't bring their profits back to the US, which means there's a limit to what they can do with them (they can't pay dividends, for example). Apple (and many other US multinationals) are holding vast sums offshore (Apple alone has hundreds of billions of dollars). They aren't bringing them home because US 'Corporation Tax' is a swingeing (by most international comparisons) 35-40% (there's a small component that varies state by state). Bring that down to 15-20% and trillions of dollars will start winging their way home. There's a large part of that which would be a one-off effect (as those offshore profits have been amassed over many years), but a reduced CT rate should mean a continuing stream of profits returning to the US as the benefits of retaining them offshore diminish.
Anon obviously - US corporation tax is high - but you have to take into account that most corporations don't pay much because they have deductions, tax losses and other options to avoid it. It's worked for me for years, my company pays for everything, my airplane, meals, artwork in my hotel that I live in (and therefor deductible) but next year, now I'm in the White House, I'll actually have a salary and will be paying taxes again.
The US companies have to have a presence in Europe for a variety of reasons (regulatory, access to the market etc.) and Ireland serves as a good base not just because tax rate is low but also because the people speak English, the workforce is well educated and there are no shortage of skilled labour.
I'm sure lowering the tax rate in the US might protect some jobs but it's simplistic to think all the jobs will come back because of it. And if they slash taxes in half there is a small question of how they fund the difference. The US already runs a deficit so I expect a red marker pen will be run right through a whole range of services and welfare programs. So much for Trump standing up for the little people.
"So much for Trump standing up for the little people."
Trump was only ever standing up for a section of little people; most of which hate dole scroungers, the workshy, the people (mostly black or immigrant) who are perceived to be exploiting the benefit system and living 'a life of luxury' paid for at the expense of hard-working all-American (mostly white) folk.
As far as they are concerned; if people can't get a job and provide for themselves and their families those 'leaching scum living on food stamps and handouts and living off tax payers' backs' can go starve and die in the gutter and no one will shed a tear.
If you cannot support yourself you are not people.
"If you cannot support yourself you are not people."
So why haven't they also pledged to amend the 14th Amendment to remove the "Anchor Baby" clause, which was needed post-Civil War but not now and is being abused by birth tourists to anchor the parents in the US through their US-born (and thus Constitutionally-protected) children?
So a 'senior economic advisor' says 15-20%. How much notice does Trump take of 'advisors' and 'experts'. Who knows what Trump may decide tomorrow or next Thursday or Feb 14th? The orange one is unbalanced and changes his mind from minute to minute. It could be anything when he finally has a chance to put something into effect.
Ho hum, roll on impeachment.
But he controls the people
He is going to need someone to blame when he can't build a wall or bring jobs home, and those "politicians in Washington" with their lobbyists and ties to Wall st are going to get the blame.
The disaffected people who voted for Trump aren't going to differentiate between evil democrat fat cats and republican fat cats if Trump calls them out - and he doesn't need the party support for his personal glory or re-election
The majority voted for someone else.
It's more correct to state that the majority did not vote for Trump.
The voter turnout was only around 60% (rounding up somewhat) which means than 40% of the eligible voters did not vote. As a result, Trump (or Clinton) have/had at most 30% of the overall vote of eligible voters.
Yeah pretty silly to claim a "mandate" for anything when the election was so close. Obama had a far larger electoral college advantage and 10 million more popular votes, but I seem to recall republicans saying it wasn't a big enough result to claim a mandate.
I guess if you win an election that's good enough to be considered a "mandate" by some, so long as it isn't so close the Supreme Court has to decide the winner.
... by doing exactly what Apple demanded the US government do. Um, this doesn't seem to gel 100% with his 'fuck you Apple, you ought to be doing everything here' talk.
It's almost like he was willing to say literally anything to win the election, and was then going to just plow ahead with the same God-awful trickle-down crap that everyone else has been running with for 30 years, isn't it?
So I guess all the media analysis up to now has been completely wrong.
The populist uprising against the elites were caused by such anger about the rates of tax paid by corporations and rich people that they voted for the guy whose top priority was to cut their taxes.
And the people who got screwed by trickle down economics all decided that the solution was an even harsher trickle down economics.
At least they'll lose their hated affordable health care.
Maybe, just maybe, all these self styled "men of thec people" who claim to be in touch with "ordinary folk" aren't what they claim to be. Who could ever have imagined that?
According to the most recent 2016 world competitiveness survey Ireland is ranked 7th (up from 16th) and the US is 3rd (down from 1st).
There is no doubt that a reduced US corporate tax rate will encourage money back to the US from abroad and give those corporations more incentive to invest at home. As others have already noted; there is a huge cash stockpile waiting offshore for that to happen. Getting that money properly into the economy can only be beneficial.
However the president-elect is not just talking about lower corporate tax rates; he is also talking about massively protectionist trade policy and restrictions on importing a skilled workforce. Those things will lead to inflation on the consumer price index and to wage inflation, directly affecting competitiveness.
A protectionist US trade policy will make it all the more necessary for multinationals to have a presence in the EU.
In those circumstances I have no doubt that Ireland can continue to win direct investment and the gap in relative competitiveness will continue to reduce.
>> he is also talking about massively protectionist trade policy and restrictions on importing a skilled workforce. Those things will lead to inflation on the consumer price index and to wage inflation, directly affecting competitiveness.
Good. H1B visa employees and offshoring is killing US IT workers, and BADLY needs to be reversed. Some amount of wage inflation is more than fine in a country where most jobs (except politicians) haven't seen pay rises in real terms in 10-15 years.
Good. H1B visa employees and offshoring is killing US IT workers
The two are not the same: I think you'll find that is H1B's get reduced that offshoring will increase. Silicon Valley wage and associated inflation is evidence that there are not enough homegrown IT people, though admittedly this is additionally distorted by the network effects. Anyway, I don't think we can expect many tech jobs to be appearing in West Virginia.
Offshoring is very likely to fall under the wheels of the automation bus.
As for driving wages down, well that would largely be done by concentrating purchasing power in companies like Walmart and Amazon but I think we "ain't seen nothing yet" if the deregulation policies get enacted. There may well be an uptick in employment (participation is still low) but wage pressure could easily be offset by other measures meaning no net gain and quite possibly a net loss for some. But I think we'll have to wait and see what stuff really gets passed.
I'm not saying wage inflation is A Bad Thing. The Donald's policies might have the effect is increasing domestic investment by bringing home the trillions of dollars of cash held offshore (which is good for just about everyone) and of increasing wages (which is good for workers).
In the context of this story; which is talking about the effect of these policies on Ireland; I think the wage inflation and barriers to trade in the US will make Ireland more competitive as a location for the multinationals to invest.
I think a protectionist trade policy will improve the domestic US economy, but will also drive more globalization as companies seek to invest outside the protected bubble.
The proposed tax changes for business in the US will not drive employment. In a consumer based economy you need consumers to buy and right now the US consumer is not really in a position to do that having seen earnings and free disposable income remain static for many years. The proposal to cut personal federal taxes to 15% will boost disposable income to an extent but then someone needs to fund the $500 billion infrastrucutre fund and it not the Federal Govt, well local tax rates can always be increased. At the same time there is the matter of the 11 million fewer consumers as a consequnce of the proposed forced repatriation of immigrants and the removal of the Syrian refugees.
A further tax to reduce disposable income will be the tax proposed to be levelled on Mexicans living in the US to pay for the new not very effective wall that is planned to stop new consumers sorry immigrants arriving from Mexico.
Of course the other big financial change is the reduction in corporate tax to 10% for businesses like Apple, Google, etc. to bring their overseas earnings back in to the US. Of course this has been done before by the Republicans and of course the only benefit was to shareholders (increased dividends and slightly inflated share prices) and the directors of those companies who paid themselves lovely rewards for being clever to wait to for the tax reduction. What won't happen is any increase in wages since that would reduce profit margins thus reducing the share price and impacting on dividends. It would also mean that people have to pay more for American goods but hey if they keep the jobs in China. India, the Philipines etc. then there is no problem as the local wages will remain low, the profit margin goes up (less domestic tax in the US) and the share price and dividends go up.
Pretty straightforward way to bring jobs back to America don't you think!
So if Ireland taxes at 12.5%, bringing that money home is "free" - better than free in fact as there would be some residual credit that can be applied against US sourced income!
Most of the $2.5 trillion in cash US corporations have sitting overseas (nearly 10% of it Apple's) would probably come home at that rate. And probably generate no tax revenue for the IRS, since much of it will have already been taxed at an average rate higher than 10%!
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How much of Apple's market is in the USA?
If the money is offshore and the growing markets are offshore why not just run the whole thing offshore and suck up any import duty on products as less than the tax on repatriating money? Level playing field with Samsung?
At the moment I'm not seeing the incentives to move any manufacturing to the USA.
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