Options for Non-EEA Resident Directors of Irish Companies: Section 137 & Section 140

Options for Non-EEA Resident Directors of Irish Companies Section 137 & Section 140

By Sinéad Floody ACG, 15th July 2024

Are you resident outside the European Economic Area (EEA) and interested in setting up a company in Ireland? The EEA includes all EU countries as well as Iceland, Norway, and Liechtenstein. If this is the case, you might be wondering about the directorship options available to you. We have simplified the parts of the Companies Act 2014 (the Act) that apply to you and your company below:

Section 137(1) of the Act provides that all Irish companies must have a director on the board who is an EEA resident. Thankfully, the Act also provides some exceptions to this rule, where a company has:

  • Put a Section 137 Bond in place; or
  • Submitted a Section 140 Certificate to the Companies Registration Office (CRO).

The Section 137 Bond

The Section 137 Bond, also known as the Non-EEA Resident Director Bond, is required at the incorporation stage as the company cannot obtain a Section 140 Certificate until it has been in existence for some time and demonstrated a ‘real and continuous link’ to Ireland.

What is the purpose of the Section 137/Non-EEA Resident Director Bond?

Section 137(2) of the Act outlines that the bond insures the company for a sum of €25,000 to cover the following:

  • Any fine imposed on the Company in respect of offences under the Act; and
  • A fine for failure to supply certain information to Revenue; and
  • Any penalty which the company has been held liable to pay under S1071 or S1073 of the Taxes Consolidation Act 1997; and
  • Any expenses incurred in recovering the fines and penalties mentioned above.

The Non-EEA Resident Director Bond is designed to assure Irish authorities that should the company face insolvency and the directors are uncontactable, the insurance bond will activate, covering any recoverable costs. It is important to note however, that the Section 137 Bond does not spare the directors from their obligations under the Act, it simply provides insurance for fines and penalties noted above.

How long does the Section 137 Bond cover the company for?

Any Section 137 Bond is in place for two years from the date the company was incorporated or the date the only EEA-resident director resigned from the board. After the two years have passed, the company has the option to either:

  • Renew the Section 137 Bond for a further two years; or
  • Appoint an EEA-resident director; or
  • Apply for a Section 140 Certificate

Section 140 Certificate

A Section 140 Certificate can be obtained from Revenue and the provision of this certificate is based on the company’s real and continuous link with the Republic of Ireland. Due to the certificate being based off previous tax years, it is not possible to utilise this option when incorporating a new company as the new company will have no tax history.

What are the requirements?

Under Section 140 of the Act, Revenue will determine if a company maintains a real and continuous link with Ireland by verifying the following criteria:

  • The company’s operations are managed by one or more individuals from a business location within the State, and these individuals are empowered to act on the company’s behalf.
  • The company engages in commercial activities within the State.
  • The company is either a subsidiary or a holding company of another entity that meets one or both of the conditions mentioned above.
  • The company is a subsidiary of a parent company, which has another subsidiary meeting one or both of the conditions mentioned above.

Advantages of the Section 140 Certificate

The Section 140 Certificate is beneficial as it eliminates the need to purchase a bond every two years or pay salaries for EEA-resident directors. Another advantage of obtaining the Section 140 Certificate is that it provides an exemption from the limitation on the number of directorships a person can hold. According to Section 142 of the Act, directors are generally restricted to a maximum of 25 directorships. However, directorships in companies with a Section 140 Certificate are not included in this count.

Non-Compliance

In the instance of a company not fulfilling its legal obligations under Section 137, i.e. not having an EEA-resident director, a Section 137 Bond or a Section 140 Certificate in place, the company concerned and any officer of it who is in default shall be guilty of a category 4 offence, which can result in a fine of up to €5,000. Compliance with Section 137 is a necessity as the CRO prohibits the filing of annual returns for companies that do not adhere to Section 137. Similarly, auditors and financial institutions do not engage with companies that are non-compliant with Section 137.

Summary

In simple terms, if your company lacks an EEA-resident director, the Section 137 Bond remains the sole option for either a newly established company or an existing company that does not have a real and continuous link with the State. Non-EEA resident directors should ensure that Section 137 is complied with to avoid hefty fines and non-compliance measures.

Should you require any assistance with a Section 137 Bond for a new incorporation, a renewal of an expired bond, or an application for a Section 140 Certificate, please do not hesitate to get in touch! Contact the Company Bureau team at +353(0)1 6461625 or fill out our online contact form.

Disclaimer: This article is for guidance purposes only. It does not constitute legal or professional advice. No liability is accepted by Company Bureau for any action taken or not taken in reliance on the information set out in this article. Professional or legal advice should be obtained before taking or refraining from any action as a result of this article. Any and all information is subject to change