What is Corporation Tax?
Corporation Tax refers to the tax levy on the profits of an Irish company or a company incorporated in Ireland. Any company that is a tax resident in Ireland is liable for Irish Corporation Tax. This tax is paid on a company’s worldwide profits – not just the profits generated in Ireland.
What are the rates?
- 12.5% Corporation Tax. This applies to trade income. It is the profits you obtain from trading or selling your products or services.
- 25% Corporation Tax. This is for non-trading or ‘passive’ income. This is income you receive from rental properties or investments, for example.
- 6.25% Corporation Tax. This relates to profits under the Knowledge Development Box. For example, income from qualifying patents or computer programmes.
Corporation Tax Return – self-assessment
Corporation tax is a self-assessment tax in Ireland so it is important that you’re aware of the different tax rates so you know the correct rate when filing and paying your Corporation Tax return. This will help you avoid any interest penalties for under-declaring your tax bill. Corporation Tax returns are prepared through Revenue Online Service (ROS).
Most businesses incorporated in Ireland will fall into the first tax rate – 12.5%. However, it’s important that you consider where your directors are resident (because this often means that this is where the company decisions are made and therefore where the business is ‘centrally managed and controlled’.) and also where the company is carrying out its trade. For example, it may be hard to justify any “active” income in the state if you set up a company in Ireland but you don’t hire staff in Ireland, you don’t have any suppliers or customers in Ireland, and you don’t make any strategic decisions here.
You can ask an accountant about your own situation. However, don’t be surprised if they ask you multiple questions to establish what tax rate you should pay. It’s a vital part of the process to ensure your company is correctly filing its tax returns and filing in the correct jurisdiction.
Is your company tax resident in Ireland?
There are 2 main tests of whether a company is tax resident in Ireland. A company must be incorporated in Ireland and it must be ‘centrally managed and controlled’ in Ireland. This usually means that the majority of directors are residents in Ireland. Provided that your company is set up and ‘actively trading’ in Ireland you are likely to qualify for the 12.5% Corporation tax. Your customers don’t all have to be in Ireland – the company is free to trade globally. You do not necessarily have to pay all the company income into an Irish account; for example, it may come in US dollars through PayPal.
When you have an Irish company, you must keep all your books and records for a minimum of six years and so, your records should show that your company is centrally controlled and managed in Ireland.. ‘actively trading’ in Ireland).
This may mean more than opening an office in Ireland, incorporating your business here, or using an Irish accountant. Revenue critically assesses your company to identify where your company is centrally controlled and managed. Make sure to check Revenue’s Company residency rules and the rules related to the jurisdiction of where the directors live if not in Ireland.
Keeping books and records
We recommend that business use online accounting software (we recommend Xero) to manage their cash flow, invoices, bills and receipts.
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