The pros and cons of Dublin for US businesses looking to internationalize

London. Stockholm. Berlin. Dublin?

When listing European tech hubs suitable for US startups, Dublin is not often the first on business owners’ minds. Considering the number of major tech players with their European headquarters in the city, the talent pool on offer and long-term access to the EU market after Brexit, that may well be an oversight.

The Background

From the off, expatriate businesses are well supported on entering the country.

IDA Ireland (the former Industrial Development Agency) has led Irish economic development for nearly seventy years, by encouraging Foreign Direct Investment (FDI), promoting free trade with the UK, the EU and the wider world, and - since 1994 - highlighting high-performance sectors in which to attract investors and businesses from abroad.

Other bodies, including Enterprise Ireland, encourage and assist startups, providing support with tax refunds and cross-government aid for innovative businesses with the potential for international sales or job creation.

They’ve been particularly successful in Dublin, which has built a $2.8bn startup ecosystem that’s almost exclusively focused on B2B enterprise and global connections.

Tech and talent

Tech startups in Dublin concentrate around the so-called Silicon Docks, a district boasting 7,000 tech professionals and some serious players. By creating a California-style campus atmosphere, the city has attracted giants in social media (Google, Facebook, Twitter and LinkedIn), e-commerce (PayPal, eBay, Etsy and Amazon) and recreation (Groupon, Eventbrite and Airbnb) to base their EU operations in its regenerated docklands.

This professional culture has been boosted by the human capital on offer. Dublin boasts four universities, the youngest population in Europe (over 40% of the population are under 30), and - thanks to Ireland’s lenient work visa system - attracts talent from elsewhere in the world.

Often, US business leaders have been hesitant at first - like Hubspot’s Brian Halligan, who “wasn’t sold on Ireland” at first, but realised “This place is better than we thought… we’ve gone from zero to 75 people in a year.”

That said, there are downsides. The high cost of renting in Dublin’s docklands affects business and residential properties alike. If you can find an office in Dublin, there’s no guarantee that your staff can afford to live there - and finding staff may be a challenge with the likes of Google and Facebook recruiting in the same market.

The tax incentive

Ireland’s low corporate tax rate (a palatable 12.5%) is an undeniably attractive factor, but it does come with a catch: the backlash against perceived avoidance or evasion of an already generous tax rate.

Apple established their European presence in Ireland early on, first arriving in the 1980s, and was encouraged to expand by a ‘sweetheart deal’ in which the tech giant’s corporation tax was capped at 1% from 1991 to 2015.

Following a three-year investigation, European competition commissioner Margrethe Vestager described the deal as “illegal under EU state aid rules”. While it seems unlikely that Ireland will see the full €13bn in back taxes, some of which may be payable in other EU member states or to the US-based parent company, it also seems unlikely that further deals of this nature will be on the table.

However: 12.5% is already a low rate of tax compared to the European average of 20.1%, or the UK’s 19% (as calculated by KPMG). Even if state aid is off the table, Ireland is still a viable tax base for a US firm looking for an English-speaking base for its European operation - if not more attractive than the UK.

Business after Brexit

Tax isn’t the only reason to consider Dublin over London. Despite the prospect of a “soft Brexit” following the 2017 snap election, by 2019, Ireland will be a member of the European Union and the United Kingdom will almost certainly not.

The post-Brexit EU is likely to be a more fragmented marketplace, according to Philip Lane (head of the Central Bank of Ireland). Dublin is not likely to be “the new London”, but neither is anywhere else. Mr. Lane claims it’s more likely that particular European cities will emerge as ‘clusters’ for particular financial sectors.

With Barclays, Citi and Morgan Stanley currently moving operations and personnel to Dublin, the Irish capital may emerge as a banking and investment cluster for the global market. Much like the startup ecosystem, this group would have a global rather than national focus, applying local talent to the markets and networks which connect in the city.

There is, of course, a but. Dublin stands to benefit from a fragmentation of the EU financial sector, but the reason for that fragmentation is the absence of London from the scene.

As Philip Lane pointed out, London’s development was a unique historical process: “you can’t just lift institutions and drop them somewhere else”. Multinational organisations may shift their emphasis but the uniquely British financial institutions - merchant banks, discount houses, and the Bank of England itself - are going nowhere.

Even if dealmaking in the UK continues to be compromised by Brexit uncertainties and government protectionism, it doesn’t follow that Ireland will take its place. Established EU networking hubs - Paris, Stockholm, and especially Berlin - are all competing for the attention of US businesses.

At the bottom line, though: Dublin’s also competing, more than some US firms realise. For a US business looking for an English-speaking, talent-rich, low-tax European centre, Dublin demands serious consideration.

We’ve helped dozens of US businesses find their feet in Europe: find out more here.

 

Picture credit

William Murphy: streetsofdublin.com / Flickr