Favourable tax for section 110

Ireland has a favourable tax regime for section 110 companies. A section 110 company is an Ireland-resident company that has no specific local management requirements and holds or manages financial assets.

A section 110 company provides an onshore platform in an environment of increased international focus on tax havens and principles of the Organisation for Economic Development (OECD), especially transparency. In practice a section 110 company can be almost tax-neutral from an Irish perspective. All profit-participating interest payments should be tax-deductible, as should swap payments, management fees, service fees, and other funding costs.

There is no withholding tax on interest payments made by a section 110 company to persons resident in an EU/treaty country or on interest payments on ‘quoted eurobonds’ made to persons resident anywhere. A wide treaty network should limit or eliminate withholding tax on inbound flows into Ireland such as interest, dividends and royalty payments.

Substance requirements for Irish tax-residency purposes are minimal. A section 110 company can hold a wide range of financial assets – for example, shares, loans, futures, options, swaps, and similar instruments (and partnership interests in these).

A section 110 company has a number of applications as an investment platform. It can be used as an onshore vehicle for offshore investors. For example, an offshore fund would set up a section 110 company and provide the investment in the company through a profit-participating loan. This is an attractive vehicle because of its low effective tax rate, onshore/EU and eurozone status and access to Ireland’s treaty network with minimal substance requirements. It can also be combined with other vehicles such as a qualifying investor fund (QIF) and/or used as an investment platform into countries with favourable treaty provisions.

A section 110 company can be formed as a public or private company. However, a QIF can be formed as a public company, unit trust or a partnership, but not as a private company. So there is flexibility to set up the entity as an eligible entity under the US check-the-box rules and an election can be made to treat the entity as fiscally transparent from a US tax perspective.