Are you planning to set up a company in Ireland but you don’t have a director who is resident in the European Economic Area (EEA)? If so, you may need to obtain a Section 137 bond to comply with the Irish company law requirements.
In this blog post, we will explain what a Section 137 bond is, why it is required, who needs it, and how to get one. We will also discuss the benefits of having a bond, the alternatives to it, and the impact of Brexit on the bond requirements. Let’s Dive in!
What is a Section 137 bond?
A Section 137 bond is a type of insurance policy that covers a company for a sum of €25,000 in case it fails to pay any fines or penalties imposed by the Revenue Commissioners or the Companies Registration Office (CRO) for non-compliance with the Irish tax or company law. The bond acts as a guarantee that the company will fulfil its obligations and liabilities in Ireland.
Why is a Section 137 bond required?
A Section 137 bond is required by Section 137 of the Companies Act 2014, which states that every Irish company must have at least one director who is resident in an EEA member state. The EEA consists of the EU countries plus Iceland, Liechtenstein, and Norway. This requirement is based on residency, not nationality. Therefore, a director who holds an EEA passport but lives outside the EEA does not satisfy this requirement.
The purpose of this requirement is to ensure that there is a person who can be held accountable and responsible for the company’s affairs in Ireland. It also aims to prevent tax evasion and fraud by companies that have no real connection or presence in Ireland.
Who needs a Section 137 bond?
A Section 137 bond is needed by any Irish company that does not have an EEA-resident director. This may include:
- Newly incorporated companies that have only non-EEA directors
- Existing companies that lose their EEA-resident director due to resignation, death, or relocation
- Companies that are part of a group structure that has no EEA-resident director at any level
If a company does not have an EEA-resident director and does not obtain a Section 137 bond, it may face serious consequences, such as:
- A fine of up to €5,000 for the company and every officer who is in default
- A criminal offence that may lead to prosecution by the Registrar of Companies
- Difficulty in opening a bank account or obtaining credit facilities in Ireland
- A risk of being struck off the register of companies and dissolved
How to obtain a Section 137 bond?
The process of obtaining a Section 137 bond involves the following steps:
Begin by approaching a recognised surety or insurance company that offers these bonds.
Provide necessary company details, including the nature of the business, financial statements, and details of the non-EEA directors.
The surety company will assess the risk associated with the bond.
Once approved, the bond is issued for a two-year period.
The cost of the bond varies but is typically around €1,500 to €2,000.
The bond is valid for two years and can be renewed if the company still doesn’t have an EEA-resident director.
The Role of Section 137 Bond in Irish Company Formation
The bond plays a crucial role in the formation of companies in Ireland. It acts as a guarantee for the Irish authorities, ensuring that non-EEA directors are committed to adhering to the country’s regulatory and financial obligations. Without this bond, the company formation process can be halted, making it a pivotal requirement for non-EEA resident directors.
Benefits of Having a Section 137 Bond
Having a Section 137 bond offers several advantages:
Avoidance of Penalties
It ensures that any fines or penalties from the Revenue or the CRO are covered.
Smooth Company Formation
The bond facilitates the smooth formation and operation of a company in Ireland for non-EEA directors.
It enhances the credibility of the company in the eyes of the Irish authorities.
What are the alternatives to a Section 137 bond?
A Section 137 bond is not the only option for non-EEA resident directors who want to comply with the Irish company law requirements. There are two other alternatives that they can choose instead of a bond:
Appointing an EEA-resident director
One alternative is to appoint an EEA-resident director who can act as an officer and representative of the company in Ireland. This director can be either:
- An existing director who moves their residence to an EEA member state
- A new director who is already resident in an EEA member state
- A professional director who offers their services for a fee
Establishing a real and continuous economic link with Ireland
Another alternative is to apply for a certificate from the Revenue Commissioners that confirms that the company has a real and continuous link with one or more economic activities that are being carried on in Ireland. This certificate, also known as a Section 140 certificate, exempts the company from the requirement to have an EEA-resident director or a Section 137 bond.
To obtain a Section 140 certificate, the company must prove that it satisfies one or more of the following criteria:
- The affairs of the company are managed by one or more persons from a place of business established in Ireland and that person or those persons are authorised by the company to act on its behalf
- The company carries on a trade in Ireland
- The company is a subsidiary or a holding company of another company or body corporate that satisfies either or both of the above criteria
- The company is a subsidiary of a company, another subsidiary which satisfies either or both of the above criteria
What are the key features of a Section 137 bond?
A Section 137 bond has some important features that non-EEA resident directors should be aware of, such as:
- It covers a period of two years and can be renewed before it expires.
- It is non-refundable once it is issued by the broker and filed with the CRO.
- It can be cancelled by the broker if the company appoints an EEA-resident director or obtains a Section 140 certificate.
- It can be called upon by the Revenue Commissioners or the CRO if the company fails to pay any fines or penalties that may arise from non-compliance with the Irish tax or company law.
How does Brexit affect the Section 137 bond requirements?
Brexit has a significant impact on the Section 137 bond requirements for Irish companies that have UK-resident directors. Since January 1st, 2021, when the UK left the EU and the EEA, UK resident directors no longer qualify as EEA-resident directors for Irish company law purposes. This means that any Irish company that relies on a UK resident director to meet the EEA-resident director requirement must take action to avoid non-compliance.
Frequently Asked Questions about Section 137 Bond
How do I renew my Section 137 bond?
To renew your Section 137 bond, you must contact your broker before your current bond expires and follow their instructions. You may need to fill out another application form and pay another fee for your new bond. You will receive your new bond certificate and a copy from your broker. You must file them with the CRO within 30 days of their issue date.
How do I cancel my Section 137 bond?
To cancel your Section 137 bond, you must notify your broker in writing and provide them with proof that you have appointed an EEA-resident director or obtained a Section 140 certificate. Your broker will then cancel your bond and inform you accordingly. You do not need to file anything with the CRO to cancel your bond.
What happens if I fail to comply with my Section 137 bond conditions?
If you fail to comply with your Section 137 bond conditions, such as paying any fines or penalties that may arise from non-compliance with the Irish tax or company law, your bond may be called upon by the Revenue Commissioners or the CRO. This means that they will claim the sum of €25,000 from your bond provider to cover the amount that you owe them. This will also result in the cancellation of your bond and the loss of your fee. You may also face other legal actions or sanctions from the authorities.
How long does it take to get a Section 137 bond?
Generally, it may take between one to four weeks to obtain a bond. Therefore, it is advisable to apply for a bond as early as possible to avoid any delays or complications.
Can I transfer my Section 137 bond to another company?
No, you cannot transfer your Section 137 bond to another company. Your bond is specific to your company and its directors. If you want to set up another company in Ireland that does not have an EEA-resident director, you will need to obtain another bond for that company.
Can I get a refund for my Section 137 bond?
No, you cannot get a refund for your Section 137 bond once it is issued by your broker and filed with the CRO. Your bond is non-refundable even if you cancel it or no longer need it.
Why Choose Peak Accounting Solutions for Your Section 137 Bond Needs
Peak Accounting Solutions, with its expertise in Irish company formation, is your ideal partner in navigating the complexities of the Section 137 bond. Our team of experts ensures a seamless process, from understanding the bond requirements to obtaining it. With our in-depth knowledge and commitment to client satisfaction, we make the journey of setting up your company in Ireland smooth and hassle-free. Contact us today for a free consultation and let us assist you in your Irish company formation journey.