At McInerney Saunders we have seen a surge in recent months of UK companies establishing a subsidiary in the Republic of Ireland. This makes sense from a UK company’s perspective – in order to possibly provide access to the Common Market in the event of a hard Brexit (which could in theory happen as soon as the end of March).
However, while establishing an Irish subsidiary is a relatively straightforward and cost effective early move in hard-Brexit planning, when establishing a subsidiary in Ireland it is important to also think ahead to what happens after the UK leaves the EU.
Irish company law contains certain advantageous exemptions where Directors are resident in ‘the EEA’ and / or the Irish company is a subsidiary of a company that is resident in ‘the EEA’. The EEA stands for the European Economic Area, which comprises all EU member states, and also Iceland, Liechtenstein and Norway. It follows that in the event of a hard Brexit the UK will fall outside of the EEA.
Under S 137 of the Companies Act 2014 Irish companies are required to have at least one Director that is resident in the EEA. Therefore, while a UK business can quite easily establish an Irish subsidiary, with the same UK Directors, as of today, this would present a problem in the event of a hard Brexit. However, all is not lost. Where an Irish company does not have an EEA-resident Director, the company has three choices:
- Appoint an EEA-resident Director;
- The company may take out an insurance bond in a prescribed form to the value of €25K which provides for situations where the company fails to pay any penalty imposed under the Companies Act 2014 or the Taxes Consolidation Act 1997. This bond lasts for 2 years and costs approximately €750 p/a to put in place; or
- The company may apply to the Irish Revenue Commissioners for a ‘real and continuous link’ certificate, on the basis that the company’s affairs are managed by one or more persons from a place of business established in the State
Under S 299 of the Companies Act 2014, an Irish company is exempt from preparing consolidated financial statements where it is itself a subsidiary of a company registered in the EEA which prepares consolidated financial statements. It follows that where an Irish company is a subsidiary of a UK company and is relying on this exemption to avoid preparing consolidated financial statements in Ireland, it may no longer be in a position to avail of this exemption after a hard Brexit.
Under S 357 of the Companies Act 2014, providing certain conditions are met, an Irish company can claim an exemption from filing its financial statements with the CRO, and instead file the consolidated financial statements of its parent company with the CRO, providing the parent company is registered in an EEA state. It follows that where an Irish company is a subsidiary of a UK company and is relying on this exemption to avoid filing its financial statements with the CRO, it may no longer be in a position to avail of this exemption after a hard Brexit.
If you require any further information on the above, or are interested in establishing an Irish subsidiary, please don’t hesitate to contact Donagh Waters at McInerney Saunders.
E: dwaters@mcinerneysaunders.ie
T: +353 1 8404029
This article does not purport to be a comprehensive analysis of the legal implications of Brexit. No responsibility is accepted by McInerney Saunders or the author for any loss arising from actions taken or not taken as a result of material contained in this article.