Lending to a Company in Ireland: Taxes and Costs

A Practice Note looking at the key issues relating to taxes and other costs involved in a loan to a company incorporated or located in Ireland (which may also involve a guarantor or security provider incorporated or located in, or assets located in, Ireland), where the lender is incorporated in another jurisdiction.

Lawyers advising a lender who is proposing to make a loan to a borrower incorporated or doing business in another jurisdiction need to be aware of a variety of issues that can affect the structure of the loan transaction. In addition, if a transaction also involves a guarantor or security provider incorporated or doing business in another jurisdiction, or the assets over which security is being taken are located in another jurisdiction, then there will be other issues to consider. Lawyers should identify these issues in the early stages of structuring a transaction, as they can have an impact on key elements of the transaction structure.

In particular, it is important to identify key issues relating to taxes and other costs that can affect the structure of the loan transaction. It is important to identify these issues in the early stages of structuring a transaction, as they can have an impact on key elements of the transaction structure, such as:

• Who the borrower, guarantor, and security providers will be.
• Whether taking guarantees and types of security will be feasible in light of the costs involved.

This Note looks at the following issues which may affect the structure of a loan transaction:

• Tax considerations and implications, including withholding taxes, documentary taxes, and other types of taxes that may affect a lender or borrower.
• Costs affecting the transaction, including registration fees, notaries’ fees, and any other similar costs imposed on the transaction.

This Note is part of a suite of resources that explain regulatory issues that should be considered when undertaking a cross-border loan finance transaction in a specified jurisdiction where the lender is incorporated in a different jurisdiction. For more information on other regulatory issues, see Cross-Border Lending: Regulatory Issues Toolkit. For information on how to structure a cross-border lending transaction, see Cross-Border Lending: Structuring the Transaction Toolkit. For information on other cross-border legal and documentation issues, see Cross-Border Lending: Legal and Documentation Issues Toolkit. For information on considerations relating to signing and closing a cross-border corporate loan transaction, see Cross-Border Lending: Signing and Closing a Corporate Loan Transaction Toolkit.

Unless otherwise stated, a reference in this Note to:

• “Irish law” is used to refer to the laws of Ireland.
• “Irish company” denotes a company incorporated in Ireland.
• “Ireland” means the island of Ireland excluding Northern Ireland.

Tax Implications

The taxes applicable to a loan transaction with a borrower who is incorporated in, or doing business in, a different jurisdiction from the jurisdiction where the lender is incorporated or doing business may have a significant impact on the transaction.

Withholding Taxes

Ireland imposes withholding tax at the rate of 20% on certain payments of interest that have an Irish source. Interest typically has an Irish source where it is payable by a company incorporated in Ireland or resident in Ireland for tax purposes, or by a borrower who is borrowing for the purposes of business carried on in Ireland.

Irish withholding tax typically does not apply where a loan is made for a term of less than 365 days.

Where withholding tax is imposed on a payment, the company is required to deduct an amount from the payment owing to the foreign lender, paying that amount to Irish Revenue Commissioners ( Irish Revenue) on account of the foreign lender’s tax liability. If the company fails to make the payment, Revenue can pursue either the company or the foreign lender for the amount that should have been withheld and paid to them.

There are a number of domestic exemptions from withholding tax.

In particular, an Irish company can make a payment free of Irish withholding tax on interest to a lender that is a body corporate and is, by virtue of the law of a Relevant Territory, resident in the Relevant Territory for tax purposes. (As used here, a “Relevant Territory” means (i) a jurisdiction that is a member of the EU, other than Ireland, or (ii) a jurisdiction with which Ireland has signed a double tax treaty.)

Importantly, the Relevant Territory (being the jurisdiction in which the lender is resident) must impose a tax that generally applies to interest receivable in that jurisdiction by companies from sources outside that jurisdiction. Persons who are tax exempt, or who are entitled to operate on a remittance basis (where they are taxed only on interest that is remitted to the jurisdiction) may not qualify under this exemption. The lender must not be carrying on a trade or business in Ireland to which the interest relates.

A second material exemption is relevant if the foreign lender is a body corporate, and the foreign lender is exempted under one of the following:

• It is exempted from the charge to Irish income tax under the terms of a double taxation treaty entered into between Ireland and another jurisdiction that is in force on the date the relevant interest is paid.
• It would be exempted from the charge to Irish income tax under the terms of a double taxation treaty entered into between Ireland and another jurisdiction signed on or before the date on which the relevant interest is paid but not in force on that date, assuming that treaty had the force of law on that date.

This second exemption is typically used by tax-exempt body corporates that are resident in a jurisdiction with which Ireland has signed a tax treaty.

Although based on the presence of a treaty, neither of these jurisdictions require a formal treaty claim to be made. Instead, the market practice is for the lender to provide a representation as its status in the transaction documents.

A third exemption is for any US corporation that is incorporated in the United States and is subject to US federal income tax on its worldwide income. In addition, under Irish Revenue practice, payments of interest to a US domiciled LLC, the ultimate owners of which are persons who would be exempt from Irish withholding tax, are also exempt from Irish withholding tax.

If one of the above domestic exemptions does not apply, parties may still rely on a double tax treaty or agreement, where that agreement exempts such interest payments from withholding (commonly referred to as an exemption for “treaty lenders”). However, to rely on the treaty exemption , the lender must provide a form to the borrower prior to the payment of interest.

Given the popularity of Ireland in international financing transactions, Irish-based borrowers will frequently be structured as companies that qualify under section 110 of the Irish Taxes Consolidation Act 1997. These are often referred to as “Section 110 Companies”. It is worth highlighting that payments of interest by such companies are subject to specific exemptions from Irish withholding tax.

It is not uncommon for Irish companies to structure their borrowing in the form of a loan note, which qualifies as a security.

The legal and commercial outcomes of loan notes are similar to those for a loan agreement, but the method of creation is more complex. The borrower (the “issuer”, in this case) executes a deed constituting the loan notes and then issues the notes to the lenders (the “subscribers”) evidenced by a certificate with the conditions of the loan notes attached. Despite the extra complexity, loan notes may be preferred to a loan agreement where the following conditions apply:

• Not all lenders are identified when the notes are issued, as adding them later and increasing the loan amount is more cumbersome with a loan agreement to amend.
• The loan terms are relatively simple and do not require lender consents or detailed information requirements.
• Transfer is anticipated; as securities, loan notes allow more easily for partial and complete transfers.
• Non-bank lenders will be involved, as banks usually prefer to lend on their own standard terms or under loan agreements with more complete terms.

An exemption from Irish withholding tax is available where a form of loan note security has been issued and either (i) the loan note has been listed on a recognised stock exchange (provided certain other conditions apply) or (ii) the loan note constitutes a “Wholesale Debt Instrument” (which includes a loan note with a maturity of less than two years).

In 2023, Ireland introduced legislation on new taxation measures that applies to outbound payments. These new rules will restrict withholding tax exemptions on interest payable to lenders where the lender is associated with the borrower and is resident in a jurisdiction listed on the EU’s non-cooperative jurisdictions list or a zero-tax jurisdiction. These provisions should not impact loans where there is no association between a lender and borrower.

Stamp Duty and Documentary Taxes

No Irish stamp duty arises on the signing or entry into a loan document or novation of a loan. However, stamp duty might arise on the acquisition of a loan by way of assignment. There are a range of possible exemptions however, including where the buyer or seller of the loan is acting in the ordinary course of their business.

When security over shares in an Irish company is created, a transfer of shares to a lender or its nominee to perfect the security is exempt from Irish stamp duty. However, stamp duty is payable if the security is subsequently enforced. That stamp duty is normally equal to 1% of the amount of the debt or, if less, the value of the shares.

Capital Gains Tax Issues

Certain features of the Irish capital gains tax system are relevant in cases of enforcement and sale of the secured asset, and on transfers of loans.

If the security is enforced against an Irish resident company or the assets of an Irish branch and the assets are sold, any capital gains tax arising on the disposal by the borrower of the secured asset must be paid in priority to the secured lender. This can be an issue where the secured asset would be subject to capital gains tax, including specifically where the secured asset is Irish land or buildings.

Irish Revenue consider that a loan secured by a mortgage on Irish land is an interest in Irish land. As a result, a transfer of a loan secured by Irish land could constitute a taxable event for the lender. Under Irish law, the person acquiring the loan is required to deduct 15% of the consideration payable on the transfer unless the transferor produces a capital gains tax clearance certificate. It is possible to obtain a capital gains tax clearance certificate through an application to Irish Revenue in advance of the transfer, provided the relevant conditions for issuance of the clearance are met.

Costs Affecting a Transaction

Registration Fees

There are no significant fees involved in registering or filing security with government authorities under Irish law. However, some nominal filing or registration fees are incurred in the registration of security at certain registry offices, such as the Companies Registration Office (CRO) or other offices with respect to certain types of assets. For example, an application to the CRO to register a charge created by an Irish company with the CRO will cost EUR40 through the CRO’s online filing system, CORE.

For mortgages on real property, the fee to register a charge (mortgage) over registered property with Tailte Éireann (a land registry) is EUR175. Registering a charge over unregistered property with the Registry of Deeds costs EUR50. However, if a charge over registered property is registered electronically with Tailte Éireann, the application fee is currently waived, in accordance with S.I. No. 677/2023 Tailte Éireann (Land Registry (Registration of Certain Charges)) (Fees) Order 2023. This initiative aims to encourage the use of electronic or e-registration.

In all instances the filing fees are generally paid by the borrower on behalf of the lender.

Notaries’ Fees

There is no notarisation requirement for Irish-law governed loan agreements, guarantees, or security documents to be valid in Ireland and, therefore, notaries’ fees are not applicable when these documents are entered into.