The Banking Environment
Economic and political environment
Ireland was a founder member of the euro. The Irish central bank, the Central Bank of Ireland, forms part of the European System of Central Banks (ESCB).
Population is 4 million. GBP per head is USD32,000. Irish GDP has grown rapidly since EU entry in 1971. Ireland has been a major beneficiary of farm subsidies and of EU loans to develop its infrastructure.
It attracted major foreign investment from the IT industry and financial industry service centres (thanks to the establishment of local development grants), and from financial companies in special low-tax zones (Shannon and the Dublin Docks International Financial Services Centre or “IFSC”). The tax rate in these zones was at a rate of 10% that the EU felt was unfairly low compared to the standard rate. The Irish government responded by dropping the standard rate to 12.5%.
Ireland’s other attractions were the support from the authorities, good communications, the high level of education, relatively low wage levels and prices, and a dynamic attitude, but also a favourable network of double-tax treaties. The threat that led to the corporation tax rate being harmonised was that other governments would renegotiate their tax treaties with Ireland if the IFSC and Shannon were “fiscal paradises”: by making tax rates there the same as in the rest of Ireland – an EU country – this threat was circumvented. The discussion within the EU about competition between member states on the level of corporation tax is on-going.
In the meantime wage and price levels have risen steeply, as have the competition for employees and property prices. Indeed Ireland’s inflation rate has moved ahead under the ESCB’s policy of EUR interest rates below 3%.
59% of exports are to the EU (of which 19% are to the UK) and 20% to the USA. 54% of imports are from the EU (UK 29% and Germany next at 6%) and 18% from the USA.
Thus GBP and USD are highly significant trading currencies. UK not being part of EMU is an on-going issue.
Banking in general
There are only three significant banks in Ireland – Allied Irish Banks, Ulster Bank and Bank of Ireland. Ulster Bank is a member of the Royal Bank of Scotland Banking Group (6th largest bank in the world) and has Branches and Business centres in both Northern Ireland & the Republic of Ireland.
Transaction banking in Ireland involves paper-based payments, mainly cheques, but there has been a recent, major and concerted effort by the Irish banks to reduce cheque usage.
Day-to-day operations bear major similarities to the UK.
There are no lifting fees on cross-border payments. Irish banks have introduced low-cost services in line with the EU Regulation if the payment is in EUR within the EU and the sender supplies the bank with the beneficiary’s IBAN and BIC. The banks have also introduced electronic banking services such that customers can only achieve low costs if their orders are submitted electronically. This is one of the measures to eliminate paper-based payments.
Current accounts are in wide use for working capital purposes; they can do overdrawn and also attract credit interest.
Foreign currency accounts are available in a large number of currencies including USD, GBP, JPY etc., and they can also go overdrawn and earn credit interest.
There is no distinction in the way accounts are run if the holder is a resident or non-resident, except on withholding tax (see below).
However, it is common practice – under the Irish authorities’ interpretation of KYC and Anti-Money Laundering Legislation – for them to require that the bank opening an account for a non-resident company obtain a legal opinion from the country of incorporation of that company, to confirm the existence, powers and good standing of the company.
All kinds of investment and borrowing instruments are available for longer-term engagements: savings accounts, short and long term deposits, treasury bills etc.
Currency
Euro