Irish company while resident in Italy

[John89]

I don't know if anybody knows this situation. If I am resident in Italy and own an Irish company domiciled in Ireland, I would normally need to pay taxes in Italy. However, there might be some slight tax savings depending how this is done.

Would the accounting be done in Ireland, since this is an Irish company? Would the Italian tax authorities know how the company made its profits? In particular, if the Irish company has stocks and bonds, would it need to pay taxes on the dividends only in Ireland (15% on US stocks), or in Ireland and Italy (15% + 26% for Italy)? Or would the Italian taxman just be informed how much the total profit is, and tax me accordingly?

 

[brescape]

The company is Irish, but from the little you say, it has not substance in Ireland and it has probably a PE in Italy as you are resident there. In this case the company would follow DTT between Italy and Ireland and be resident in either, or both countries. Generally for such DTT you usually pay differentially, so in this case 15% in ireland and 26-15=11% in Italy.

I believe you will need to fill returns in both countries

The fact that the Italian taxman is informed or not is irrelevant if you want to do the right thing.

 

[John89]

The company is Irish, but from the little you say, it has not substance in Ireland and it has probably a PE in Italy as you are resident there. In this case the company would follow DTT between Italy and Ireland and be resident in either, or both countries. Generally for such DTT you usually pay differentially, so in this case 15% in ireland and 26-15=11% in Italy.

I believe you will need to fill returns in both countries

The fact that the Italian taxman is informed or not is irrelevant if you want to do the right thing.

Thank you. I would be resident in Italy, but the company would be managed by a nominal director in Ireland, not by myself. I would be the main (perhaps only) shareholder.

You are talking about the taxes on the dividends, right? Wouldn't a company resident in Ireland calculate taxes following its own jurisdiction, and then tell the Italian authorities how much taxes are due, which I would need to pay in my country of residence (Italy)? If this is so, then I don't need to pay 26% in Italy for the dividends, I would just need to pay 15% in Ireland, right?

Then the company would have its profits, which would be taxed 12.5% in Ireland and 24.5%-12.5%=12% in Italy? Or distribute the dividends in terms of salary, for which I would pay about the same (24%) in taxes in Italy?

 

[Corno]

Thank you. I would be resident in Italy, but the company would be managed by a nominal director in Ireland, not by myself. I would be the main (perhaps only) shareholder.

You are talking about the taxes on the dividends, right? Wouldn't a company resident in Ireland calculate taxes following its own jurisdiction, and then tell the Italian authorities how much taxes are due, which I would need to pay in my country of residence (Italy)? If this is so, then I don't need to pay 26% in Italy for the dividends, I would just need to pay 15% in Ireland, right?

Then the company would have its profits, which would be taxed 12.5% in Ireland and 24.5%-12.5%=12% in Italy? Or distribute the dividends in terms of salary, for which I would pay about the same (24%) in taxes in Italy?

So the nominal director would receive a proper salary? That's not gonna be cheap in Ireland. If you only intend to pay him a few hundred bucks, don't even bother trying.

This is from the DTT between Italy and Ireland:

Article 9 - Dividends

1. Dividends paid by a company which is a resident of a Contracting State to a resident of the other Contracting State may be taxed in that other State.

2. However, such dividends may be taxed in the Contracting State of which the company paying the dividends is a resident, and according to the law of that State, but the tax so charged shall not exceed 15 percent of the gross amount of the dividends.

3. The provisions of paragraph 2 shall not affect the taxation of the company in respect of the profits out of which the dividends are paid.

4. Notwithstanding the provisions of paragraph 2, dividends paid by a company which is a resident of Ireland to a resident of Italy shall be exempt from Irish sur-tax.

5. The term "dividends" as used in this Article means income from shares, "jouissance" shares or "jouissance" rights, mining shares, founders' shares or other rights, not being debt-claims, participating in profits, as well as income from other corporate rights assimilated to income from shares by the taxation law of the State of which the company making the distribution is a resident.

6. The provisions of paragraphs 1, 2 and 4 shall not apply if the recipient of the dividends, being a resident of a Contracting State, has in the other Contracting State, of which the company paying the dividends is a resident, a permanent establishment. In such a case, the dividends shall remain taxable in that other Contracting State according to its own law.

7. Where a company which is a resident of a Contracting State derives profits or income from the other Contracting State, that other State may not impose any tax on the dividends paid by the company to persons who are not residents of that other State, or subject the company's undistributed profits to a tax on undistributed profits, even if the dividends paid or the undistributed profits consist wholly or partly of profits or income arising in such other State.

8. The competent authorities of the Contracting States shall by mutual agreement settle the mode of application of paragraph 2.

 

[brescape]

Assuming you have substance in Ireland, as you seems to have, my comment is not anymore relevant.
In the setup you describe the tax on dividend paid to you are subject (and this is a very generic concept not only applicable to the countries we are describing)
- if any, to dividend withholding of Ireland on dividend paid to foreign (again, I am not sure if any, UK for example has no withholding tax in this case)
- to Italian dividend tax, that from what you say it seems 26%. If you pay any withholding in Ireland you may get a discount for this, so at the end of the day you will mostly certainly pay 26% in combined tax.

 

[brescape]

>1. Dividends paid by a company which is a resident of a Contracting State to a resident of the other Contracting State may be taxed in that other State.

Means you just pay 26% in Italy

 

[John89]

>1. Dividends paid by a company which is a resident of a Contracting State to a resident of the other Contracting State may be taxed in that other State.

Means you just pay 26% in Italy

The Irish company wouldn't have Italian stocks, it would have US stocks, Irish-registered ETFs, Australian stocks, Dutch stocks, etc. I am not sure if this is relevant. I am going to read your posts more attentively now, and trying to figure out how it works.
Thank you for taking the time to answer!!

 

[brescape]

I now re-read and I see your question is about dividend tax paid by the company on dividends of the stocks
My answer was about dividend paid to you from the Irish company
The Irish company will pay tax based uniquely on Irish corporate tax rules, that I don't really know, but probably are easy to work out.

 

[John89]

Thank you! Yes, that was my question. You write "that I don't really know": you mean the level of taxation by the Irish taxman on dividends from US, UK, AU, etc. stocks that my Irish company would have?

So the Italian taxman wouldn't see the source of incomes in the Irish company, right? They would just see the profit/loss, and tax accordingly, right?

Also, I read somewhere that a small Irish company wouldn't need a complete accounting, but just a simplified statement of the income, expenses, profits and losses. No need for audited accounts. Do you know if that is correct?

 

[brescape]

>You write "that I don't really know": you mean the level of taxation by the Irish taxman on dividends from US, UK, AU, etc. stocks that my Irish company would have?

correct

> So the Italian taxman wouldn't see the source of incomes in the Irish company, right? They would just see the profit/loss, and tax accordingly, right?

Taxman can access anything these days, especially within EU, but he wouldn't and shouldn't care, as long as it is considered a foreign entity (control, PE, etc). I do not think the Italian taxman should care about profit or loss. They would only care about how much it is paid to you (as dividend or other), that is the only Italian tax consideration here

> Also, I read somewhere that a small Irish company wouldn't need a complete accounting, but just a simplified statement of the income, expenses, profits and losses. No need for audited accounts. Do you know if that is correct?

You probably need to consult some Irish tax expert

 

[heliotrope]

Surely it's obligatory here to get the opinion of an Italian accountant, one well-versed in cross-border issues. Be aware that Italy has some of the strictest 'esterovestizione' laws (i.e. using a company as 'borrowed dress') out there.