The reason why Ireland is such an attractive option for the exploitation of royalties is that, generally speaking, no withholding tax is applicable to outgoing royalties (except on patent and mining royalties, but even these may be exempt under certain circumstances).

For many licensing structures, Ireland will be the best location for an intermediary licensing company for the exploitation of all types of intellectual property. With its new, convenient capital allowance regime, Ireland is now an ideal location for developing, holding and exploiting IP. It is important to remember that every case is different, and appropriate advice must always be sought.

About royalty payments
Royalty payments by Irish companies can be subject to a 20% withholding tax. However, there is an exemption where the recipient is a resident of an EU or a treaty state where royalty income is subject to tax. Even if these conditions are not met, with appropriate structuring and by ensuring that the payment is not treated as originating in Ireland (i.e. making sure that the patent is not registered or exploited in Ireland, that no Irish bank account is used and the relevant agreements are not governed by Irish law, etc.) it will still be possible in many cases for an Irish company to make patent royalty payments without any deductions for Irish withholding tax.

Structures where the Irish company is the IP owner
Alternatively, an Irish company may be used to hold the intellectual property beneficially, having either developed it in-house or purchased it (including from a connected party, in which case the purchase price will be capped for tax purposes at the arm’s length price). Generous tax allowances are available against income earned from the exploitation of intellectual property including patents, copyright, trade marks and brands and know-how (where the income is directly attributable to intangible assets). The allowances available are equal to the depreciation or amortisation charge shown in the accounts in accordance with generally accepted accounting principles.

The allowances can only be set against income or sales derived from the use or exploitation of the intellectual property, and are limited to 80% of the profits from such activities in any given year. With the right structuring, the average tax rate can be brought down to 2.5%. In order to claim Irish tax relief on the cost of intellectual property, the company must be actively exploiting it, or products deriving from it, in Ireland. This requires an office and employees located in Ireland. This requirement does not apply to those utilising an offshore structure.