Center for City Development Policy has prepared research on investments policy in Ireland, one of the fastest developing countries in Europe and the world.

Ireland average growth rate in 2013-2023 reached 5.11%, compared to EU average 1.69%.

The key driver of Irish economic growth is foreign investment, particularly in high-tech and ICT. We believe that Ireland's high economic growth is the result of the country's systemic policy aimed at attracting foreign investment, focus on creating jobs, particularly in high-tech and skilled industries.

The government has emphasized international competitiveness, encouraging foreign companies to expand research and development (R&D) and produce higher-value goods and services.

Gain valuable insights by reading our article.

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1. Republic of Ireland is one of the most effective countries in the European Union in terms of attracting FDI

Republic of Ireland (hereinafter Ireland) has the second highest GDP per capita in EU ($103,685 USD), behind only Luxembourg. Interestingly Ireland ranks #124 in the list of countries by population, while in terms of the size of the economy by GDP, Ireland is consistently included in the list of the largest economies in the world #23-#24 place. The average GDP growth rate of Ireland over the last 10 years (2013-2023) is 5.11%. At the same time, the average GDP growth rate of the EU over the last 10 years (2013-2023) is 1.69%.

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Ireland's GDP in 2023 was $551.55 billion, while its GNP was only $363.6 billion. This is because Ireland is home to many multinational corporations headquartered in the country. These companies generate a significant amount of economic activity in Ireland, but most of their profits are repatriated to their home countries.

However, FDI, thanks to smart economic policies of the Irish Government, makes a huge positive contribution to the economy of the Republic, primarily due to:

- job creation particularly in sectors like technology, pharmaceuticals, and financial services;

- growth in exports of goods and services;

- implementation of advanced technologies and innovation;

- increase in government tax revenue.

2. Key FDI figures.

According to UNCTAD, Ireland ranks 6th in the TOP ten European countries by the share of FDI in other countries from global FDI by the end of 2023 (about 3% of the global volume of Outward FDI). At the same time, Ireland ranks second in the TOP ten European countries by the share of FDI in other countries in the economy of European countries from global FDI (2.8% of the global volume of Inward FDI).

In terms of investment assets and investment liabilities, Ireland ranks 5th in Europe, behind only Germany, Luxembourg, France and the Netherlands. At the same time, investment assets in 2005-2023 grew by 7.3 times in nominal value, and investment liabilities by 5.3 times in nominal value.

It is interesting that FDI (Stock Outward) at the end of 2023 and FDI (Stock, Inward) in Ireland are quite close and amount to 242% and 255% of GDP, respectively.

According to calculations by the Center for City Development Policy, the average annual growth of investment assets and investment liabilities in 2006-2023 in Ireland reached 8.9%.

The US State Department estimates that US foreign direct investment in Ireland was $557 billion in 2021. There are currently approximately 950 US subsidiaries in Ireland, employing approximately 209,000 people and indirectly supporting the employment of another 167,000 people (more than 10% of Ireland’s total workforce).

US companies operate primarily in the following sectors: chemicals, biosciences, pharmaceuticals and medical devices, computer hardware and software, websites and digital media; electronics; and financial services.

At the same time, according to Eurostat, at the end of the second quarter of 2024, Ireland has a positive Net Position on Foreign Direct Investment with countries outside the European Union.

Besides, Ireland is included in the group of European countries with a moderate dependence of the country's GFCF on FDI from countries outside the European Union (the average annual flow of incoming FDI exceeds the country's GFCF in the period 2019-2023 by only 18.53 percent).

Thus, the conclusion about the positive contribution of FDI to the Irish economy can be substantiated by FDI statistics, which show that inward and outward FDI in Ireland are fairly balanced.

3. Key Features of Irish policies towards foreign direct investment

The main objective of Ireland's investment promotion has been to create jobs, particularly in high-tech and high-skilled industries. Within a last decade the government has focused on Ireland's international competitiveness, encouraging foreign companies to expand research and development (R&D) activities and deliver higher-value goods and services. Ireland has become an important R&D hub for US firms in Europe, especially internet and digital media investment. Industry leaders such as Google, Amazon, eBay, PayPal, Meta (Facebook), Twitter, LinkedIn, Electronic Arts use Ireland as a hub for their European and sometimes Middle Eastern, African and Indian operations.

3.1. Low corporate tax rates

Low corporate tax rates and even lower effective tax rates are one of the main attractions for international corporations and their foreign direct investment. For other taxes, Ireland's rates are close to the EU average.

Ireland has some of the lowest corporate tax rates in the EU, behind only Hungary (9%) and Bulgaria (10%). Corporate tax in Ireland is 2 times lower than in France (25.8%) and the Netherlands (25.8%), 2.5 times lower than in Germany (29.9%) and 3 times lower than in Malta (35%).

It is important to note that this tax advantage has been created over decades of consistent Irish government policy. In the 1980s, as Ireland's economy was transitioning from an agricultural to an industrial focus, the EU agreed to override EU state aid rules to allow Ireland a 10% "special rate" for manufacturing in a special economic zone called the International Financial Services Centre (IFSC) in central Dublin in 1987.

Then, from 1987 to 1996, Ireland began to gradually reduce its corporate tax rate from 40%. The transformation of corporate tax accelerated when Ireland's standard corporate tax rate was reduced from 40% to 12.5% (in stages from 1996 to 2003) in response to the 1996-98 EU decision to remove the state aid exemption.

Moreover, in 2016, the government introduced the Knowledge Development Box (KDB). This measure allows for a reduced tax rate of 6.25% on profits derived from intellectual property assets generated through qualifying research and development activities conducted within Ireland. This is particularly important for companies in the high-tech and ICT sectors, which are most sensitive to R&D and intellectual property.

3.2. Extensive network of bilateral or multilateral taxation treaties

Ireland's attractive tax environment is enhanced by a combination of factors. In addition to its low corporate tax rate, the country has established a robust network of tax treaties with numerous countries. These treaties help multinational companies avoid double taxation on their profits, making Ireland an even more appealing destination for investment.

Ireland's tax treaty with the United States is particularly significant, as it strengthens tax cooperation and compliance between the two countries. Moreover, Ireland has comprehensive double taxation agreements (DTAs) with 74 countries, covering corporate, income, and capital gains taxes. These DTAs promote trade and investment by eliminating the risk of double taxation.

Even in the absence of a bilateral tax treaty, Ireland offers unilateral credit relief for taxes paid in other countries on certain types of income, further mitigating the tax burden on foreign companies.

3.3. Advantages and Opportunities of FDI Policies

In addition to an attractive tax system, experts note the following advantages and opportunities for Ireland as a destination country for FDI:

- Ireland as an exporting sales and support platform to the EU market of almost 500 million consumers and other global markets;

- good transportation and trade connections with the EU and US;

- pro-business government policies and regulators;

- Ireland also benefits from a transparent judicial system;

- a large concentration of high-tech companies and financial institutions already operating in Ireland attracts new companies;

- flexible labor market.

After Brexit, Ireland's advantages have increased and many UK-based firms have moved headquarters or opened subsidiary offices in Ireland to facilitate ease of business with other EU countries, because:

- after Brexit Ireland and Malta are the only remaining English-speaking countries in the EU;

- Ireland has become a "go-between" between the EU and the UK since the agreement allowed Northern Ireland to remain within both Great Britain; (England, Scotland, and Wales) and the EU single market.

Interestingly Irish companies are able to use ferries from Ireland directly to continental Europe, though this has raised costs in some sectors. Most trade partners of the Ireland switched to direct shipping to the Ireland rather than using Great Britain as a land-bridge for trucking products.

3.4. Challenges of Irish economic growth

The high level of development already achieved by the Irish economy contributes to restraining the rate of GDP growth in the medium term. Among the key factors restraining development are high labor and operating costs (such as for energy); shortage of high qualified specialists, which has to be solved through labor migration and relatively high personal income tax rates.

Also, according to our estimates, infrastructure development lags behind the rate of development of economic development, causing housing and high-quality office space shortages.

And probably the most significant threats that the Irish Government cannot significantly influence are:

- probable changes in US economic and trade policy;

- implementation of the Global Minimum Tax in the medium term could neutralize the competitive advantages of the Irish tax system;

- as EU member, Ireland is to implement all EU-wide rules on investment screening, like the EU Framework.

4. Key elements of Irish policies towards foreign direct investment

In addition to tax measures and investment promotion policies, Ireland has created a favourable environment for doing business, including:

- minimum barriers to registration and management of foreign companies;

- system of government incentives supporting investment;

- intellectual property rights protection system;

- transparent and efficient dispute resolution system.

4.1. Minimum barriers to registration and management of foreign companies

In 2014, the Irish government implemented a new rule requiring companies to be both registered and tax-resident in Ireland to incorporate there.

- so, foreign companies, which registered as public limited companies (PLCs), can operate in Ireland directly.

- the companies incorporated outside of Ireland can establish branches within the country by registering with the Companies Registration Office (CRO). Foreign companies with Irish branches have the same legal rights and obligations as domestic Irish companies, including access to all possible incentives.

Also, foreign entities can participate in the purchase of Irish state-owned companies without any restrictions.

Interestingly, the Irish government doesn't demand data storage within the country. Foreign tech companies aren't required to share source code or provide access for surveillance purposes. There are no specific regulations on data storage minimums.

4.2. Government Incentives for Investment and R&D:

Also, Ireland and local governments created a variety of grants to stimulate quality investments:

- investors can receive government grants to cover costs related to capital equipment, land, buildings, training, and research and development (R&D).

- foreign businesses must submit detailed proposals to qualify for grant aid.

- there are special grant payments tied to specific job creation targets, which are set jointly by government agencies and investors.

Also, Ireland implemented a number of R&D support incentives, aimed to support high-tech companies invest and do business in the country:

- tax breaks: foreign companies conducting R&D in Ireland can benefit from reduced corporate tax rates.

- R&D Tax Credit: A 25% tax credit is available for R&D expenses in various sectors, including software, engineering, and pharmaceuticals.

- Knowledge Development Box (KDB): A lower 6.25% corporate tax rate applies to profits from intellectual property generated through qualifying R&D activities.

4.3. Intellectual property rights protection system

Ireland strengthened its intellectual property rights (IPR) laws in 2000 to align with international standards set by the World Trade Organization (WTO). This made Ireland's IPR framework one of the most robust in Europe.

In 2019, Ireland further enhanced its IPR protection with the Copyright and Other Intellectual Property Law Provisions Act. This legislation aims to improve copyright and other IPR protections in the digital age, making it easier for rights holders to enforce their rights in court.

Ireland also implemented the EU's Copyright in the Digital Single Market Directive in November 2021, further strengthening its digital copyright protections.

Ireland offers a fair and efficient legal system that allows foreign investors to acquire, protect, and dispose of property rights without discrimination.

4.4. Transparent and efficient dispute resolution system

Ireland's legal system, based on common law and EU regulations, is primarily handled through its domestic courts. The Department of Enterprise, Trade, and Employment (DETE) oversees company law, and the judiciary is independent.

Ireland is a member of the International Center for the Settlement of Investment Disputes (ICSID) and a signatory to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards.

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