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Foreign-Owned Corporations

Over the last sixty years the Irish Government has encouraged corporations from other countries to start operating in Ireland. For example, a German drug manufacturer may build a factory here, a British retail chain may open a shop in this country, a Dutch Bank may set up an Irish branch, or an American Internet company may create a European sales office in Ireland. This is part of the Globalisation trend.

These Foreign-Owned Corporations bring Foreign Direct Investment (FDI) to Ireland as they spend money here setting up their operations. They provide employment in this country and pay taxes to the Irish Government. They buy goods and services from Irish businesses.

In many cases, the transactions Foreign-Owned corporations have with other countries dwarfs their spending in this country. They import and export huge volumes of goods and services (see Contract Manufacturing). Most of their profit leaves the country, going back out to the foreign owners. Some of this profit flows out as dividends paid to the investors and the remainder is treated as flowing out to the owner as Reinvested Earnings.

Foreign-Owned corporations in Ireland have large assets of Intellectual Property (IP), that is things like patents and the know-how to make high-tech products such as medicines or consumer electronics. This IP is very valuable when it is new, but declines in value quite quickly as the market moves on. The decline in value is called Consumption of Fixed Capital, and it is included in Ireland’s Gross Domestic Product and Gross National Income. However, since this Consumption of Fixed Capital does not really add much to the Irish economy, a Modified Gross National Income removes some of this Consumption of Fixed Capital to give a truer measure of how the Irish economy is growing.

The term Foreign Direct Investment (FDI) Enterprise includes Foreign-Owned Corporations but has a wider meaning. FDI can have four forms. In all of these cases, the investment is counted as part of FDI:

A branch is an enterprise that is set up in Ireland by foreign investors but which has not formally registered a company here: it still operates within a company in another country. For National Accounts, we treat branches as if they are corporations ('quasi-corporations') in their own right here
Subsidiaries are more than half owned by foreign investors (and usually entirely owned by foreign investors)
Associates are mostly owned by Irish investors, with less than half of their ownership in foreign control
If only a small part of an enterprise is owned by foreign investors, that is, less than 10% of it, then it is simply considered a Domestic Corporation.

Only the first two of these forms are called Foreign-Owned Corporations: branches and subsidiaries. In practice, they make up the vast majority of FDI.