Irish Corporation Tax

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 to have to pay Irish Corporation Tax.

What are the rates?

1. 12.5% Corporation Tax. This applies to trade income. Trade income refers to the profits you make from selling your products or services.
2. 25% Corporation Tax. This is payable from non-trading or ‘passive’ income. This can be the income your company receives from rental properties or investments.
3. 6.25% Corporation Tax. This relates to profits under Knowledge Development. For example, if your company earns profits from patents, apps or computer programmes.

 

Corporation Tax Return – self-assessment

Corporation tax is the basis of company tax in Ireland and is a self-assessment tax. 

It is important to familiarise yourself with the different tax rates you may be liable for different parts of your business.

you must be aware of the different tax rates so you know the correct rate when filing and paying your Corporation Tax return.

This will help a company avoid any interest penalties for under-declaring the tax rate to be charged where by accident or intention. It is still an under-declaration on a company’s tax return.

Directors’ residency

Many businesses incorporated in Ireland fall into the first tax rate of 12.5%.

Some businesses however cannot claim this rate due to the residency of their directors. If a company’s directors are residents outside of Ireland (generally this will be where the business is centrally managed and controlled from). In such a case the company tax rate will not be 12.5%.

Such companies can’t justify any income in the state, they have no staff operating in Ireland and have neither suppliers nor customers in Ireland. Then it is understandable why they are not entitled to the corporation tax that companies who operate in the state are entitled to.

Is your company tax resident in Ireland?

There are two main tests to judge whether a company is tax resident in Ireland or not.

Firstly, a company must be incorporated in Ireland and it must be ‘centrally managed and controlled’ in Ireland as well. This means that at least one of the company directors is resident in Ireland.

If a company is actively trading in Ireland, then this satisfies the criteria for tax residency.

Even if you are a tax resident in Ireland, it doesn’t mean that you have to lodge all the company income into an Irish bank account; You can also have monies in trading platforms such as PayPal where it can remain until it is needed by the company.

Keep your records

Irish companies must keep all books and records for a minimum of six years to prove that it has been actively trading in Ireland.

Opening an office in Ireland or the incorporation of your business in Ireland or using an Irish accounting firm doesn’t necessarily mean it passes all the tests required.

Revenue. ie will assess whether your company is centrally controlled and managed in Ireland. To be sure, check Revenue’s company residency rules and the rules related to the jurisdiction of where the directors live if not in Ireland.

We recommend that businesses use online accounting software (we recommend Xero) to manage their cash flow, invoices, bills and receipts.

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