Irish Tax: Learn about the Republic of Ireland corporation tax and rules for company residency.
A company must use revenue online services (ROS), to file their return and pay any Irish tax due under mandatory e-filing and e-payment.
Companies based in Ireland are required to pay CT on worldwide profits. These profits include income as well capital gains. Companies that do business in Ireland through non-residents must also pay CT
A company’s CT is subject to Income Irish tax rules. Capital Gains Tax (CGT), rules determine the number of chargeable gains.
Corporation Irish tax rates.
There are two rates of Corporation Tax in the Republic of Ireland (CT).
- 12.5% on trading income
- 25% income from an exception trade (as defined by part 2 of the Taxes Consolidation Act), and 25% for income that is not trading, such as rental or investment income.
CT is added to the profits earned during a company’s accounting periods. The accounting period must not exceed 12 months. Profits that are subject to changes in the Irish tax rate during the accounting period will be divided on a time-based basis and taxed accordingly.
Tax residency rules for companies incorporated in Ireland
A company may be subject to different residency rules depending on whether it was established in Ireland prior to or later than 1 January 2015.
If a company was established in Ireland after January 1, 2015, it is considered to be an Irish tax resident. This applies unless the company is treated in another country as a tax resident under a Double Taxation Agreement.
A transition period is available for companies that were incorporated prior to 1 January 2015. This includes those who were incorporated after 31 December 2020. A company will be considered tax resident from this date unless it is a tax-resident in another country as part of a Double Taxation Agreement.
This rule is not applicable to companies that have both after 31 December 2014.
- Change of ownership
- Major changes in the conduct and nature of the business.
These circumstances will result in the company becoming a tax resident as of the date of change in ownership.
The central management and control rule was used before these rules were implemented to determine if a company is a resident. If the company’s central management and control were performed in Ireland, it was considered a resident. It did not matter if the company was established in Ireland. This rule will apply to Irish companies that were formed before January 2015, but it will be transitional.
Irish tax rules for companies not incorporated in Ireland
Foreign incorporated companies are subject to the central management and control rule. A company that is established in a foreign country, and centrally managed and controlled by Ireland is considered to be resident in Ireland for tax purposes.
The central management control test.
Revenue will decide where central management and control is available by assessing the highest level of control. This assessment will ask critical questions to determine where:
- The company policy is set
- Investment decisions are made
- Major contracts are identified
- The head office of the company is located in
- Directors make up the majority of those who live.
Cessation or removal of residence.
If a company ceases to be an Irish tax resident, its assets are deemed to have been sold at market value. Except where:
- A branch or agency of the company can continue to use the assets in Ireland
- Residents of the European Union (EU), or a tax treaty country control the company.
Tax rules for close businesses in the Republic of Ireland
Close companies are Irish resident companies controlled by five or fewer participants. If the directors are also involved, this number could be greater.
A participator is someone who holds a share of the income or capital of a company. It also includes:
- Does the company have a share capital, voting rights, or loan capital?
- All rights to distributions of any company
- You can use the income or assets of the company directly or in an indirect way for their benefit. This applies to future or present income.
Irish tax rules for company capital allowances and deductions.
To reduce its tax liability, a company may claim certain expenses and costs against its profits. These expenses exclude business entertainment expenses and items of capital expenditure. Capital expenditure refers to money that a company spends to buy or maintain land, buildings, or equipment.
Capital allowances may be claimed by a company for capital expenditures it makes on certain business assets or business premises.
Capital allowances are usually calculated on the net value of the business asset. Different rates are available depending on what asset you have. Capital allowances can be claimed by companies on:
- Machines and plants
- Industrial buildings
- Motor vehicles
- Transmission capacity rights
- Software for computers
- Specified intangible assets
Capital allowances can be claimed by a company at the following rates:
- 12.5% for plant and machine over eight years
- Most industrial buildings are 4% for 25 years.
A company can receive an Accelerated Capital Allowance of 100% to cover the following:
- Equipment that is energy efficient, including electric and other fuel vehicles
- Refuelling and gas vehicles
- The company provides equipment in a creche and gym to its employees.
The ACA is available for claim in the first year of the asset’s use in the business.
Capital allowances can be claimed by companies at 15% per year for buildings used as creches and gyms by their employees.
Pre-trading expenses: Certain expenses may be incurred by a company in the three years prior to trading. These expenses can be deducted from profits by a company.
Irish tax interest and other annual payments: Companies in Ireland can deduct interest payments, royalties, and other payments when calculating the CT amount due. Dividend withholding tax (DWT) must be deducted from a company’s patent royalty payments. This must be included in the CT calculation. This does not apply:
- Payments covered under the Interest and Royalties Directive
- Taxes Consolidation Act 1997, s242a covers payments
- Corporation Tax – Treatment for certain patent royalties paid out to companies residing outside of the State
Donations: Companies may make charitable donations to approved charities or organizations. It may be possible to lower the CT amount due if it does. A single donation of EUR250 is the minimum amount allowed each year.
Dividends: Dividends, and other distributions, are not deductible when calculating a company’s trading profits. There is generally no CT on dividends paid from one Irish resident company into another. Most dividends paid by Irish resident companies are subject to Dividend Withholding Tax (DWT).
Trading losses in the Republic of Ireland
A company can offset trading losses during an accounting period to get relief from the Irish tax.
- Other trading income from the same accounting period
- Trade income for the immediately preceding accounting periods.
This relief is calculated using a euro per euro basis. A loss of one Euro can be offset by a profit of one Euro.
Valuable basis relief: Trading losses that are not used may be offset against other income (including chargeable gains) on a value basis. Trading losses are subject to a 12.5% Irish tax rate, which is the standard rate for Corporation Irish Tax.
Transferred losses: Unutilized trading losses may be transferred forward without limitation to trading income from the same trade during future accounting periods. The first available profits from the same trade must be used to claim a loss.
Companies that engage in an exceptional trade are exempted from the above limitations. These companies may offset trading losses against:
- Their total profits for the same period in which the loss arose, and
- Their total profits of the immediately preceding accounting period.
If you found this article helpful, please go to the rest of the website for more about accounting in the Republic of Ireland, the general accounting standards, some of the tax reliefs in Ireland, the Irish company audit requirements and audit exemptions, understanding the Irish tax system, or more accounting and financial topics in International Accounting, Audit, Taxation, Accounting Software, Cloud Accounting and Accounting Automation.
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