Corporation Tax

About Corporation Tax (CT)

Corporation Tax is the main direct tax levied on the profit of a company in Ireland.

Companies may also be subject to income tax, capital gains tax (CGT) and Stamp Duty.

Corporation tax is assessed on the profits of a company for an accounting period. An accounting period cannot exceed twelve months.

Tax Residency

Determining a company’s liability to corporation tax in Ireland has become an extremely topical subject in recent years. Also, the international tax climate has thrown a number of variables into the equation including US tax reform (Corporation Tax reduction from 35% to 21%), Brexit, the EU push for a common corporate tax base (CCCTB) and the OECD BEPS programme.

Ireland taxes the Worldwide profits of Irish incorporated companies and normally gives credit against Irish tax, for any foreign corporate tax incurred. This means that an Irish company which has a branch located in another country e.g. Germany, is likely to be subject to tax on its profits in Germany. The Irish company when completing its corporate tax return will include the foreign branch profits as taxable profits. Although tax will already have been paid on these branch profits in Germany, Irish tax will apply, with a credit available for the tax paid in Germany.

A company which is incorporated in Ireland after 1st January 2015, is deemed to be tax resident in Ireland and therefore liable to corporation tax. This change in legislation closed a loophole in the Irish tax code which received much adverse publicity.

A company not incorporated in Ireland may still be deemed registered in Ireland if the organisation core management and control functions are performed in Ireland.

This is a complex area on which the merits of each case must be considered fully prior to making a determination on tax residency.

The main body of legislation governing the taxation of companies in Ireland is the Tax Consolidation Act 1997 (TCA’97).

Rates of Corporation Tax

  • Trading Profits 12.5%

The rate applying to profits from TRADING activities of a company.

  • Non-Trading Profits 25%

Applies to profits generated from Non-TRADING activities such as rents, interest & securities, development land and from the extraction of minerals and similar activities.

It is not unusual for a company to have profits from both trading and non-trading activities, therefore both rates would apply.

Determining whether a company’s activities will be classed a Trading or Non-Trading can a complex and requires careful consideration. Please refer to my blog on same.

Reliefs

Start-up Relief

This measure applies to companies newly incorporated after 14th October 2008 in any EU country and includes Norway & Iceland.

The company must begin trading before 31st December 2018.

The relief only applies to startup companies a liability to Corporation Tax of less than €40K in a 12 month accounting period .

The relief is given by reducing the qualifying Corporation tax liability by the amount of Employers’ PRSI paid in the accounting period.

Note: The maximum Employers’ PRSI offset is limited to €5k per employee.

Additionally credit is given for Employers’ PRSI Exempted under the Employers’ Job Incentive Scheme.

As is the case with many start-ups, a company can be in a loss-making position for the earlier years. In recognition of this it is now possible to carry-forward the qualifying relief amount (PRSI paid over the first 3 years of trading) to be relieved against future corporation tax. In summary the qualifying relief amount is built-up in the first 3 years of trading however it may be used at any time in the future date when the company is generating profits.

Start-up Refunds for Entrepreneurs (SURE)

In starting your own company you may be entitled to an income tax refund of up to 41% of the capital you invest.

The capital sum invested is used to reduce your PAYE earnings in the previous 6 tax years. This results in a refund of income tax (not PRSI or USC) on the reduced earnings, for the years in questions.

There are a number of qualifying conditions:

  • 1. Establish a new trading company.
  • 2. Have mainly PAYE income for the previous 4 years.
  • 3.Take up full-time employment in the new company.
  • 4.Invest cash in the company  by way of new shares.

Due Dates

A company must file a return of income within nine months of the end of its accounting period.

A company also has an obligation to make a payment of Preliminary Tax (PT). The PT due date depends on whether the company is classed as either a SMALL or NON-SMALL company.

A Small companies must pay PT one month before the end of its accounting period.  A small company is one whose Corporation Tax liability for the previous accounting period does not exceed € 200K.

The amount of PT payable is either:

  • 90% of its current year final tax liability or
  • 100% of the corporation tax liability for the previous accounting period.

A Non-small company must pay PT in two instalments. The first instalment will be the minimum of

  • 50% of the previous year corporation tax liability or
  • 45% of the current year’s final liability.

The second instalment to be paid not later than one month before the end of the accounting period must bring their total PT payment to 90% of the current year final liability.

For both Small and Non-small companies any balance of tax is due for payment on or before the company’s annual return date i.e. 9 months after the accounting period end date.

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