Ireland: the best country in which to do business?

Posted on February 15, 2014 · Posted in Accounting & Business

The ‘Great Recession’ has brought many bad things – high levels of unemployment, cuts in income, large scale emigration.  Yet it seems it has also led to something good – Ireland becoming the best place in the world for doing business.  That, at least, is the assessment of the respected and influential Forbes magazine.

 

Lower costs brought about by the recession helped Ireland jump from number six in the global league table in 2012 to the leading position for last year.  Improved price stability, effective price controls and a rising stock market all helped push Ireland up the rankings, as did a 17% fall in nominal wages costs between 2008 and 2011.

 

Some 145 countries were evaluated according to 11 measures of business-friendliness.  These included property rights, tax levels, innovation, technology, red tape and investor protection.  Individual assessments on performance on these measures were from acknowledged experts, including the World Bank, the World Economic Forum and Transparency International.  Ireland was the only country in the top 15% for every measure and performed particularly well for low taxes, investor protection and personal freedom.

 

ACCA’s head of Ireland, Liz Hughes, responded: “It is very good news that the Forbes analysis places Ireland as the number one country in the world in which to do business.  The reach of Forbes extends to most senior executives of most large corporations not only in the United States, but worldwide – which will further boost Ireland’s capacity to attract inward investment.

 

“We should take this opportunity to remind ourselves that despite the trauma of recent years, Ireland still has a remarkably strong offering to both FDI and indigenous businesses.  Although Ireland is often seen as providing a low tax base for global businesses, the Forbes review shows that we have many other strengths as well.  Ironically, the depth of the recession has improved Ireland’s ability to service businesses, with a well educated workforce, very many of whom are unfortunately currently unemployed.  The recession has also improved Ireland’s competitiveness in terms of lower costs.

 

“There are signs that our economy is improving, with several very significant announcements of inward investments in recent months.  That is helping to drive higher demand for accountants.  However, we must not overlook the fact that we must still do more to make Ireland even more attractive.  We must be constantly alert to the skills and training needs of employers and we must do far more to improve aspects of our infrastructure.”

 

Pádraig Cronin, Deloitte’s head of tax and legal services, agrees that the overall signs for Ireland are very good.  “The Forbes ranking is extremely positive in terms of positioning Ireland Inc globally and enhancing our reputation as a location for doing business,” he says.  “The challenge for Ireland to continue to attract our share of global inward investment is an ongoing one and so while we need to play fair, we also need to continue to play to win. Indeed, a recent pan-European report carried out by Deloitte highlights the competition Ireland faces in this regard.”

 

That report put Ireland as only the fourth most favourable tax jurisdiction among European smaller countries – behind Luxembourg, Switzerland and Belgium.  However, tax certainty was cited as the most important individual factor for a jurisdiction and Ireland performed best of the small European countries in this regard.

 

“Positioning Ireland Inc as a location for foreign direct investment with the global focus on tax planning by multinationals is one of the crucial tax issues facing the country at the moment,” explains Cronin. “Ireland needs to continue to constructively engage with all stakeholders to ensure we are part of any solution. We have significant opportunity to gain from this process by insisting on ‘substance’ in Ireland in respect of any transaction/project. I believe that Ireland’s FDI tax package remains robust in this regard and am confident that the overall tax policy sentiment of ‘playing fair, but playing to win’ is appropriate.”

 

A PwC/World Bank report from late last year was even more positive about Ireland’s competitive tax position.  It concluded that Ireland is the most effective country in the EU for paying business taxes and the sixth most effective globally.  The analysis put Ireland’s effective corporate tax rate at 12.3%, compared to the EU average of 12.9% and the international average of 16.1%.

 

The study also found that a typical Irish company spends just over a quarter of its total commercial profit in taxes, spends two weeks dealing with its tax affairs and makes a tax payment nearly every six weeks.  Globally, the typical company pays almost half its commercial profit in taxes, spends over seven weeks dealing with tax affairs and makes a tax payment every second week.  It is the system’s simplicity as well as low tax rate that provides Ireland’s competitive tax position, says PwC.

 

EY’s globalisation report, published last year, also praised Ireland. Mike McKerr, managing partner of EY Ireland, explains:  “Ireland is well positioned to build on its successes and grow its fledgling trade links with fast growing emerging economies, such as China and India.  As Ireland’s economy comes out of ‘intensive care’ the recent [economic] troubles [and lower costs] have made it more attractive for companies moving in.”

 

But, McKerr warns, Ireland needs to remain innovative to compete.   “The nature of globalisation continues to evolve and change,” he says. “Technology continues to enable and enhance the flow of capital, ideas and innovation in ways that are increasingly hard to anticipate. The challenge for business is how to monitor, evaluate and respond as rapidly and effectively as they can to a dynamic environment that cannot be dealt with by an ‘off the shelf solution’.”

 

Forbes quotes a recent American Chamber of Commerce Ireland report that showed an escalating rate of investment by US corporate into Ireland since the onset of recession.  Between 2008 and 2012 some $129.5bn US FDI arrived – more than the total of the previous 58 years.  Ireland was the fourth largest recipient of US FDI in 2013, receiving almost as much as the whole of developing Asia.

 

There are now over a thousand foreign companies located in Ireland, employing 161,000 people.  The IDA’s annual report for 2013 listed an 18% increase in overseas first time investors in Ireland, creating an additional 13,367 new jobs – though net FDI job creation was just 7,071 positions once redundancies were taken into account.

 

Last year’s new investors included Qualcomm, Airbnb and Tripadvisor, while those increasing existing investments included Deutsche Bank, Twitter, eBay, Novartis, Facebook, Symantec and Yahoo.  The IDA exceeded its FDI job creation targets and has helped grow FDI employment for each of the past four years.
Barry O’Leary, CEO of IDA Ireland, comments: “Ireland enters 2014 in a far stronger position than in recent years – that will bolster the country’s brand image, spurring additional interest from investors.

Only recently the IBM ‘Global Location Trends’ report put Ireland first in the world for inward investment by quality and value and first in Europe and second in the world for the number of investment jobs per capita. This is testament to how strong Ireland’s offering is.

 

“The majority of IDA client companies come to Ireland to service the Europe market and that market is currently showing slow growth prospects.  There is a strong pipeline for conversion over the next six months. The continuing focus on competitiveness is key to attracting further FDI.  The most innovative and sophisticated companies in the world continue to invest and reinvest in Ireland and I am confident they will do so again in 2014.”

 

But the IDA believes new strategies are needed, with a focus on new markets, to keep ahead of competitor nations.  O’Leary explains: “IDA Ireland is examining future opportunities to bring new forms of Foreign Direct Investment into Ireland, in order to expand Ireland’s current FDI offering. The agency has established a cross-divisional group to do this work as part of a strategy to grow through diversification.  The group, which draws on professional expertise within IDA and relevant stakeholder inputs, has looked at a range of potential areas of opportunity in foreign direct investment with the potential to assist job creation in the years ahead.

“IDA’s strategy Horizon 2020 committed the organisation to winning new forms of FDI and IDA is now seeking to ensure it captures any available opportunities beyond its current core sectors which are information and communication technology, consumer content and business services, pharmaceuticals, medical devices, financial services, emerging business, engineering, manufacturing and clean tech.”

 

The need to expand Ireland’s offering is underlined by an assessment suggesting national vulnerabilities.  The World Bank Group’s latest Doing Business report found significant weaknesses in Ireland’s international competitive position.  While Ireland is rated very highly in terms of paying taxes, investor protection, ease of starting a business and for resolving insolvency, it performs badly on other criteria.  It is only 51st (out of 189 countries) for registering a property, 62nd for contract enforcement and in the bottom half of countries for dealing with construction permits and getting electricity.

 

Jobs, enterprise and innovation minister Richard Bruton responded that the Government is committed to addressing these weaknesses.  He pledged to establish with Taoiseach Enda Kenny an initiative to improve performance in each area.  Bruton stressed that the Government’s Action Plan for Jobs has been instrumental in generating jobs and FDI.

 

“Multinational companies have played a major role in the 3% employment growth we have seen across the economy in the past year,” said the minister. “Every 10 jobs created in multinational companies lead to approximately seven jobs being created elsewhere in the economy in supply and service businesses. There are now two main challenges – to continue and accelerate the growth in multinational companies here and to maximise the positive impact of these companies on the rest of the Irish economy.”

 

But it is instructive to note which countries are regarded by Forbes as Ireland’s main competitors.  The second and third best locations – New Zealand and Hong Kong – are on the side of the world.  The next best European countries are all Scandinavian, which tend to perform particularly well on innovation, rather than tax rates.  The UK is only 12th overall and 13th in terms of tax burden.  Ireland’s advantage as a low tax location for FDI in Europe remains very clear and strong.

 

Box-out

 

How Ireland compares

 

1. Ireland

GDP: $210 billion
Tax Burden rank: 6
Innovation rank: 20
Monetary Freedom rank: 11
Red Tape rank: 12

 

2. New Zealand

GDP: $170 billion
Tax Burden rank: 21
Innovation rank: 25
Monetary Freedom rank: 9
Red Tape rank: 1

 

3. Hong Kong

GDP: $263 billion
Tax Burden rank: 4
Innovation rank: 23
Monetary Freedom rank: 12
Red Tape rank: 5

 

4. Denmark

GDP: $314 billion
Tax Burden rank: 11
Innovation rank: 11
Monetary Freedom rank: 27
Red Tape rank: 35

 

5. Sweden

GDP: $526 billion
Tax Burden rank: 36
Innovation rank: 6
Monetary Freedom rank: 12
Red Tape rank: 52

 

6. Finland

GDP: $250 billion
Tax Burden rank: 19
Innovation rank: 1
Monetary Freedom rank: 36
Red Tape rank: 48