Corporation Tax Corporation Tax in Ireland

Last updated: May 20, 2024

In Ireland, the corporation tax system targets the profits of companies with two primary rates: a standard rate of 12.5%, among the lowest in Europe, to entice business establishment and investment; and a higher rate of 25% for passive income, including investments and rental earnings.

Irish companies pay corporation tax on worldwide profits, while foreign companies only pay corporation tax on profits made through their Irish operations. The corporation tax system is designed to be business-friendly, encouraging investment and economic growth in Ireland, with various exemptions and reliefs to support growth and innovation discussed further below.

Modern city at dusk with buildings and a bridges over a river, symbolising the Corporation Tax.
Corporation Tax in Ireland

Corporation Tax Rates in Ireland

Ireland's corporation tax structure includes two main rates:

  • Trading Income at 12.5%: This applies to income earned from the company’s primary business activities, such as selling goods or services. For instance, a bakery's revenue from selling bread and cakes represents its trading income. This rate is designed to encourage active business operations within Ireland.
  • Non-Trading Income at 25%: This higher rate applies to passive income streams, such as earnings from investments or rental properties. For example, if the aforementioned bakery also earns rental income from leasing out a property, this income is taxed at the higher rate since it does not derive from the bakery's core business operations.

Deductions and Allowances

In Ireland, companies can deduct expenses that are wholly and exclusively for business purposes. Examples of tax-deductible business expenses include professional fees (legal, accounting), office supplies and stationery, staff training, repairs and maintenance and certain motor, travel and subsistence expenses.

Certain non-deductible capital expenses may qualify for capital allowances. This is a way for businesses to get tax relief on capital expenditure by allowing it to be deducted from profits before tax. This applies to various assets including plant & machinery, industrial buildings and certain intellectual property. The relief effectively spreads the cost of the asset over its useful life, providing a deduction against profits each year. The rate at which capital allowances are given depends on the type of asset, with common rates being 12.5% per year for plant & machinery.

Corporation Tax Return

The filing of the Corporation Tax Return is due on the 23rd day of the 9th month after the accounting year end. For example, if the accounting year end is 31 December 2023, the corporation tax return is due on the 23rd of September 2024.

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Loss/Group Relief

Ireland offers relief for companies experiencing trading losses. These losses can be offset against other trading incomes within the same or previous accounting period on a one-to-one basis. If unused, these losses may offset non-trading income up to the 12.5% rate and can be carried forward indefinitely.

Group Relief is another mechanism allowing companies within a group (where one company is at least a 75% subsidiary of another, or both are 75% subsidiaries of a third company) to share their corporation tax losses. This is particularly beneficial for groups with varying profitability across different entities.

Close Companies

In Ireland, the term "close company" signifies a company under the control of five or fewer individuals, or directors who are also shareholders, irrespective of their total number. This classification typically encompasses small, family-run businesses, setting them apart from larger publicly traded companies with a more diverse shareholder base. The close company designation reflects a business structure where decision-making and financial interests are concentrated among a few, often leading to specific tax implications.

There is a surcharge of 20% payable on the undistributed investment and rental income of a close company. Professional service companies are liable to a surcharge of 15% on half of its undistributed trading income and a surcharge of 20% on the undistributed non-trading income. There is a de minimis threshold of €2,000 below which the surcharge will not apply.

Start-up Exemption

New companies enjoy a corporation tax relief for their first three years, aimed at reducing the tax burden on profits from new trades. Full relief is available if the corporation tax due is €40,000 or less, with partial relief available up to €60,000. The relief amount is determined by the employer’s PRSI contributions, with a cap set at €5,000 per employee or €40,000 overall per year.

However, not every business qualifies for this relief. Specifically excluded are companies subject to the 25% rate of corporation tax and professional service companies.

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Research & Development (R&D) Credit

Certain R&D expenditure qualifies for a tax credit of 25%. This is in addition to a tax deduction at 12.5%, which gives an effective deduction of 37.5%. Claims must be made within 12 months of the period in which the expenditure is incurred.

R&D tax credits can be repaid over three annual instalments. Companies can choose to offset these instalments against their corporation tax liabilities or have them repaid. R&D expenditure may be carried back to the prior period to generate a cash refund where the company had a CT liability in the prior accounting period.

Examples of qualifying R&D expenditure include developing new software technologies, creating innovate manufacturing processes or conducting experiments to develop new materials. The activities must seek to advance science or technology, solve technological uncertainties and can range from basic research to the development of new products or improvements to existing ones.

Preliminary Tax

Preliminary corporation tax is an advance payment towards your company’s expected tax bill for the year. New companies are exempt from paying preliminary tax in the first year if the corporation tax liability is less than €200,000. The full tax liability is due to be paid when filing the tax return. This helps new businesses by easing the initial tax payment burden. The payment dates of preliminary tax depend on the size of the company.

Large companies

Large companies, for preliminary tax purposes, are those with a corporation tax liability of over €200,000 in the previous year. Large companies must pay preliminary tax in two instalments, which is broken down as follows -

6 months before the end of the accounting period (23rd day of the 6th month):

  • 50% of the prior year’s final liability.
  • 45% of the current years expected liability.

One month before the end of the accounting period (23rd day of the 11th month):

  • The amount paid should bring the total amount of preliminary tax paid to 90% of the final liability.

Small Companies

A small company, for preliminary tax purposes is a company with a corporation tax liability of less than €200,000. Small companies only must pay preliminary tax in one instalment, one month before the end of the accounting period (23rd day of the 11th month) and the amount paid must be 100% of the prior year's liability or 90% of the current year's liability .

Penalties

There are surcharges on the late filing of corporation tax of Corporation Tax Returns as follows:

  • Date of Filing - Within 2 months after deadline has passed;
  • Surcharge - 5% of tax payable up to a maximum of €12,695;
  • Restriction - 25% of loss relief up to a maximum of €31,740.

  • Date of Filing - 2 months or more after deadline has passed;
  • Surcharge - 10% of tax payable up to a maximum of €63,485;
  • Restriction - 50% of loss relief up to a maximum of €158,715.

Additionally, it is important to note that late payments incur a daily interest at a rate of 0.0219% and certain reliefs may be restricted based on the delay length.

Further Guidance and Assistance

Should you have any queries or require assistance with your Accounting and Tax needs, our dedicated team at Incorpro is here to help. Connect with us by calling 01-4429409, or visit our Contact Page for more ways to get in touch. Stay updated and engaged by following our Social Media Pages on Twitter, Facebook, LinkedIn and Instagram.

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