Following changes to Irish legislation that remove obstacles to setting up a business in Ireland, the European Commission has closed its infringement case.
Irish law had previously required that all companies registered in Ireland appoint at least one Irish resident as director or to hold a bond. Derogations to these requirements were neither clear nor transparent. The Commission believed these requirements were against EU rules on freedom of establishment and started legal proceedings against Ireland.
Freedom of establishment is one of the fundamental freedoms of the EU Internal Market. It grants companies and persons the right to set up and do business everywhere they want in the EU. This provision has direct effect, meaning that EU Member States must modify their national laws if they stand in the way of this freedom. Freedom of establishment has opened many opportunities for businesses wanting to expand and offer their products and services across the EU, making it an important contributor to creating jobs, growth and more choice for consumers.
According to section 43 of the Irish Company Act, all companies registered in Ireland were required to have at least one Irish resident as director or to hold a bond. The bond would act as a guarantee in case of failure by the company to pay potential fines or penalties imposed. Derogations to these requirements were foreseen, but did not specify clear and transparent criteria. In the Commission’s view, the requirements ran counter to EU rules on freedom of establishment as they deterred companies from setting up business in Ireland. Also, the Commission believed the derogations gave too much discretion to the Irish authorities when deciding whether to grant those derogations.
Following a letter of formal notice sent by the Commission, the first step of the EU infringement procedure laid down by the Treaty on the Functioning of the European Union (Article 258), Ireland agreed to modify its legislation. The revised legislation, although requiring now a European Economic Area (the Member States of the EU plus Iceland, Norway and Liechtenstein) resident director or a bond, offers now clearer and more transparent conditions for the application of the derogations to the requirements previously mentioned. Companies who meet the derogations’ criteria do not have to meet the requirements for an EEA resident director or a bond, meaning that they can now set up business in a less restrictive manner.
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