International Trade – Case Studies
Republic of Ireland
Irish Agency Company
A Tax-Efficient International Invoicing Solution
With the impending departure of the UK from the EU, an increasing number of clients are exploring the Irish Agency Company/IBC model as a more advantageous option over the UK Agency Company/IBC for conducting tax-effective business in Europe.
What is an Agency Company?
An Irish Agency Company is specifically established to act as a nominee or agent on behalf of a principal company, essentially operating as a fiduciary or agent for the principal company.
How is it used and Implemented?
The two entities enter into a contractual agreement that outlines the terms of their relationship. All business activities and sales are then conducted in the name of the Irish company, albeit on behalf of the principal company. Customers enter into contracts with the Irish company, receive invoices from them, and make payments to the Irish company’s bank account. Subsequently, the Irish company remits income to the principal company after deducting an agreed-upon commission.
Ownership and Control of the Company
The Irish company is managed and controlled by the principal company and its officers, including control over the Irish company’s bank account. Notably, the Irish company is prohibited from conducting trade within Ireland or engaging with Irish businesses.
The Irish company incurs tax liability on the profits it generates, based on the fees retained in accordance with the agency or nominee agreement.
Why is it used?
This structure is well-suited for European trading scenarios where invoicing from a non-EU company may not be readily accepted. It alleviates the complications typically associated with direct dealings with non-EU companies.
Furthermore, there are tax advantages to consider:
- It offers a low-tax environment, with tax payable on only 5-10% of the parent company’s turnover.
- Ideal for situations where receipts from non-EU companies are not accepted.
- It’s advantageous for cases requiring an onshore profile.
- Effective in EU VAT triangulation scenarios.
The Irish Agency Company is a popular trading vehicle with minimal exposure to Irish taxation. It is subject to Irish taxation only on the agency fee it receives, typically around 5% of gross profit after deducting administrative costs. Despite the relatively high nominal tax rate of 25%, structuring through an Irish Agency Company remains a tax-efficient and cost-effective approach for providing services, commissions, and conducting general trading.
In this agency structure, an Irish company enters into an agency agreement with an offshore principal. The Irish company acts as an agent, entering contracts and commission agreements on behalf of the offshore principal. Contracts for the purchase and sale of products or services are initiated by the offshore principal, either directly or through the Irish company, as instructed by the offshore principal. The Irish company issues invoices with its VAT number, signs documents, and manages funds. Importantly, the Irish company does not engage with Irish suppliers, service providers, or customers.
Key Advantages of the Irish Agency (Nominee) Company
- The Irish company can conduct an agency contract with an offshore principal.
- All business activities are conducted in the name of the Irish company.
- Corporate tax is applied only to the agency commission received by the Irish company.
- Financial statements exclusively disclose the agency fee as turnover, without exposing the turnover of the offshore principal in the statutory accounts.
Irish Nominee Structure – Case Study
The Irish Company enters into agreements, on behalf of the offshore principal, to buy leather handbags from an Italian manufacturer and supply the same to a Spanish retail group.
The Italian company will invoice the Irish Company for the market value of the handbags, quoting their respective VAT number and reflecting the Irish Company’s VAT number on their invoice, thus zero-rating the supply and VAT charge.
The Irish Company in turn will request that the goods are delivered to a Freeport where they will take the title of the goods and onward ship, without importation into Ireland, the handbags to Spain. At this time, the Irish Company will issue an invoice to the Spanish retail group, again reflecting the Irish Company’s VAT number and that of the Spanish Company, in order to zero rates the supply for VAT purposes. The handbags are thus delivered with all documentation reflecting the Irish Company and not the original supplier, nor the offshore principal.
Once the goods have been received and accepted in Spain, the Spanish retail group will pay the invoice received from the Irish Company direct into the bank account provided by the Irish Company.
On receipt of the funds, the Irish Company will in turn settle the invoice received from the Italian Company. The remaining funds, less the agreed fee for the Nominee Company, will be remitted to account specified and provided by the offshore principal.
The Irish Company will become taxable in Ireland just for the residual generated profit.
Should you require additional information, have a quotation or might need to clarify any related matter, please contact one of our consultants who will be happy to assist with your enquiries.
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