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Non-Financial Corporations (S.11)

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Foreign-Owned Enterprises

Most of Ireland's gross domestic product (GDP) is generated by foreign-owned corporations. Their wages and taxes stay in the country but their profits flow out to their owners, so their net effect on the economy is much smaller than their GDP effect. To provide better insight into the domestic economy, the non-financial and financial corporations sectors are divided into foreign-owned (S.11a) and domestic (S.11b) sub-sectors[1]. The redomiciled PLCs are Irish by the internationally accepted definition, but their large positions and transactions have little interaction with the rest of the domestic economy, and for this reason they are presented separately from the domestic non-financials as sub-sector S.11c.

Figure 2.1 breaks down the main direct contributions of foreign-owned corporations (S.11a) to GDP (they also contribute indirectly through purchase of goods and services from domestic corporations). The largest part of their impact is net profit, which, as mentioned, flows out to the rest of the world as dividends and reinvested earnings. The next largest element is consumption of fixed capital or depreciation, which is included in Ireland's gross national income. The taxes and wages are small relative to the overall GDP impact but large in national terms (€7.9 billion and €21.1 billion respectively in 2019).

 

 [1] Further business statistics on foreign-owned multi-nationals in Ireland are provided in the annual Business in Ireland publication. This publication has some differences in methodology (PDF 138KB) with these institutional sector accounts (see note).

Depreciation (P.51c)Profit after tax (B.2n-D.5)Tax (D.5)Wages (D.1)
201314.14131.4292.81614.811
201415.07434.170462.9335415.428
201541.88164.7034.39516.813
201648.4654.507485.2985217.836
201755.84360.758785.8952219.004
201862.94471.794887.5351220.342
201967.62582.525257.8987521.148

Profit Share

The gross profit (B.2g) and compensation of employees increased in 2019 for both domestically-owned and foreign-owned non-financial corporations.  The bar graph (left axis) in Figure 2.2 illustrates the values of profits earned and wages paid in the sector. The line graphs (right axis) show the share of total GVA that is profit. The first group of bars represent the domestic non-financials (S.11b), for which profit and wages are both major components. The second group of bars represent the foreign multi-nationals (S.11a) for whom the profit is far greater than the pay to employees, reflecting the fact that much of their activity is contract manufacturing for which they do not pay wages directly in Ireland. The large increase in profits of foreign-owned corporations resulted in an even higher profit share here in 2019, while among the domestic non-financials there was a slight decline in profit share to 38%. The domestic profit share is close to the ratio for the Euro-area as a whole of 40% in 2019.

X-axis labelDom NFC GOSDom NFC COEDom NFC CoE Profit ShareForeign NFC profitForeign NFC CoEForeign NFC profit share
201315.126047831862726.548424797810736.295715044256
201418.69062728560528.539746438065539.5733207510865
201518.538925127979330.601790798840437.726200724441
201621.408576592857134.022726314969638.6218174024452
201726.628503027216837.103549035388241.7819639654145
201826.879887737297939.975191232975540.2062014604004
201927.630679313934344.520167625645838.2957102874656
201348.38614.81176.5637609380192
201452.17815.42877.1795402774902
2015110.97916.81386.8434643796169
2016108.26617.83685.855894434664
2017122.49719.00486.5697062211574
2018142.27420.34287.4907758154179
2019158.04921.14888.1984631439143

In this year's publication gross value added at basic prices is broken down by institutional sector, economic activity (A21 sections of NACE Rev.2) and by component (compensation of employees and gross operating surplus at basic prices) here [2]. This allows for analysis within each sector and sub-sector. For example, figure 2.3 shows the compensation of employees in the five NACE sectors with the largest foreign-owned GVA. In some of these sectors, 90% of the GVA is from foreign-owned corporations. However, we can see that the compensation of employees has a very different profile: it is generally either mostly from domestically owned firms or not dominated by any one institutional sector.

 

 [2] Basic price gross operating surplus is after the addition of taxes (D.29) and the subtraction of subsidies (D.39).

Nace DescriptionDom. Fin.Dom. Non-Fin.Fgn Fin.Fgn Non-Fin.Gov.HHSNPISHRDM
Manufacturing, mining05.6807.26900.04500
ICT03.96904.39300.00600
Financial services4.68703.65100000
Professions, Admin05.39202.1440.0040.24600.012
Support services03.78601.6730.0340.0580.0160

Since 2015, capital investment in Ireland has been out of proportion to the long term trend. This is illustrated in figure 2.4, which shows investment in constant prices from the National Income and Expenditure publication. This increase has been driven by foreign-owned NFCs moving intellectual property (such as patents) to Ireland, usually as an company here purchases it from another company in the group.

YearGross fixed capital formation
199517.399
199620.205
199723.427
199826.711
199930.536
200032.026
200133.886
200235.778
200338.597
200442.368
200549.536
200653.131
200753.133
200846.947
200939.037
201033.202
201133.081
201238.329
201336.858
201443.652
201565.549
201698.883
201798.859
201892.749
2019162.134

Figure 2.5 shows the investment rate of non-financial corporations, which expresses gross fixed capital formation as a percentage of gross value added, for the last six years. The bars on the left represent the domestic non-financial sector, while those on the right are the large foreign MNE's. Figure 2.5 illustrates the extend to which Ireland's unusually high level of capital investment is driven by foreign MNE's. Domestic corporations had a lower and steadier investment rate throughout the period. The EU average was 25% in 2019, similar to that of domestically owned Irish corporations.

X-axis labelDomestic GVADomestic GFCFDomestic Investment RateFgn NFC Gross Value AddedFgn NFC GFCFFgn NFC Investment Rate
201342.37754841311637.3849639214888417.4265954450615
201447.97090914033267.4337959555583215.4964666894507
201549.78449261469839.2076261341046618.4949683134587
201656.079922300996211.699098285152320.8614737772996
201764.412915316402514.54852245451422.5863437216749
201867.589625879269116.192985597285923.9577973492714
201973.150931610380218.264887750772924.9687698415875
201363.6316.94897227126.6367629592959
201468.13820.00694498829.3623895447474
2015128.30442.64504425333.2375017559858
2016126.62572.16190962556.9886749259625
2017142.01969.6256133849.0255623402502
2018163.17159.56124975536.50235014494
2019179.804124.75240649669.3824422682476

Foreign-owned non-financial corporations here have higher equity liabilities but also much higher net entrepreneurial income than the purely domestic corporations. Their return on equity is around 21% in 2019, while the domestic NFCs, once the redomiciled PLC's have been removed, have a return of around 9% in this year. The value for the Euro Area is 23% (in Germany it averages over 50% in recent years). Many of the large MNE's are unlisted wholly-owned subsidiaries of the foreign parent and thus their equity liability may not reflect the market value of the enterprise. Furthermore, the substantial foreign direct investment in Ireland is spread across financial instruments, of which equity is only one. The return on equity is illustrated in figure 2.6. 

X-axis labelDomestic NFC Entrep'l inc excl current taxDomestic NFC Equity LiabilitiesDomestic NFC Return on EquityForeign-owned NFC Entrep'l inc excl current taxForeign-owned NFC Equity LiabilitiesForeign-owned NFC Return on Equity
201312.4306147085709140.8066940424978.82814186718929
201417.4905688521953156.73505887106611.1593213274533
201517.1269842381927235.7710195080397.26424489062735
201621.3683188022068249.7054235759988.55741076673226
201727.1979370093607247.44387188829210.99155812662
201828.4333201775866296.1008387917849.60258008508401
201928.5892819167991322.9884098005988.85148848977248
201344.533194.66035073592722.8772833459099
201447.29446200.17954100834223.6260208020105
201598.858296.63450952025833.326533773795
201696.15048404.92239089457423.7454095308436
2017111.54578558.96788124151119.9556689647799
2018126.15388562.22214637868922.438440181086
2019140.37525654.190522404921.4578544311465

 

 

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