Irelands Tax Structure

Ireland is ranked as the easiest country in Europe for the payment of business taxes. This makes it an interesting prospect for both indigenous and foreign investment.

The tax regime in Ireland comprises of three core tax elements.

1. Corporation Tax / Income Tax
2. VAT
3. Employers Tax (PAYE)

Corporation Tax

Corporation Tax in Ireland is charged on all trading revenue after all expenses are deducted at at uniquely low rate of 12.5%. The tax is paid by all Irish companies on income earned not just in Ireland, but also worldwide.

All Irish Companies must register for corporation tax, file a tax return with the Revenue Commissioners, and pay the tax every year.

To be eligible for Irish Corporation Tax, you’ll need to show that you perform activities in Ireland. For example having an office in Ireland as well as customers and suppliers.

Income Tax

Income Tax is paid by unincorporated entities (eg sloe traders ) and by employees. As with Corporation tax, Income tax is paid on profit once expenses are deducted. The amount of Income tax that you pay is based on the amount earned.

Currently, income tax is charged at 20% of income up to €35,300 per annum and the balance is taxed at 40%. Tax credits, allowances and reliefs will also apply depending on your particular circumstances. More details of this can be found on the Revenue Commissioners website

VAT (or Value Added Tax)

VAT is a tax which businesses must add to the price of their service or product. All businesses in Ireland are obliged to charge VAT once their annual sales reaches certain thresholds. For business providing services, the annual threshold is €37,000 and for business providing goods, the annual threshold is €75,000.

The rate at which you will charge VAT will depend on what activity you carry out. The Standard rate is currently 21% and the reduced rate is 13.5%. As guiding principal, professional services attract a VAT rate of 21% whereas the supply of goods attracts Vat at the reduced rate of 13.5%. The Revenue Commissioners have published a VAT rate database which you can view here

As with Corporation tax, to apply for a VAT number Revenue may ask you for evidence that you trade in Ireland so you’ll need to be in a position to provide this. Evidence can include proof that you have an office in Ireland, invoices to suppliers or customers who are based in Ireland and proof that the owner or company director is resident in Ireland.

Once you register for VAT and start charging it to your customers, you’ll be entitled to reclaim the VAT that you pay on your purchases. You’ll need to calculate the net VAT payment by deducting VAT that you paid out from VAT that you received during each two month period and pay that net amount to Revenue.  For startups which have large set up costs, this can sometimes result in a VAT reclaim but be careful here as multiple VAT reclaims can bring you to the attention of the revenue auditors.

VAT can mess with your cashflow so take care to ensure that you pay VAT only when you have the the funds to do so. With this in mind, consider registering for VAT on a “cash receipts basis”. This will ensure that you only pay out VAT once you have received it from your customer and not before (for example, once you have issued your invoice but before collecting the funds).

Employers Tax

If your business employs staff then you’ll need to register for Employers Tax.

There are three types. The first is called Pay As You Earn (PAYE), the second is Pay Related Social Insurance (PRSI) and the third is the The Universal Social Charge (USC)

PAYE is the income that you will pay on your salary. PAYE is deducted at source which means that the employer must deduct if from the employees salary and pay it directly to the the Revenue Commissioners. Both Sole Traders and limited Companies will need to register for PAYE if they employ staff.

The Universal Social Charge (USC) is a tax on all annual incomes over €13,000. It was introduced during more frugal times as a catch all tax to provide. The USC has been strongly criticized due to it’s blunt nature under which it taxes all employees regardless of their wealth or income level.

Pay Related Social Insurance (PRSI). Both Employers and Employees pay PRSI. Employers must calculate the amount due and deduct it directly from all salary payments and pay it to the Revenue commissioners. The payments are used by the Government to make Social Welfare Payments.

A Note About the Revenue Commissioners

The Revenue Commissioners are the responsible entity in Ireland for the collection taxes and as well as compliance and prosecution for unpaid tax.

Revenue are the last people you want to owe money to. Although it is possible to enter into settlement agreements for amounts overdue, Revenue can be aggressive in seeking recovery of any outstanding amounts and they have extreme powers to enforce the repayment of money owed. Their legal recovery powers can extend to shutting down your business and seeking debt repayment with recourse from personal assets and other income streams which may be unrelated to your business. Revenue are also one of the few state entities that can take money directly from your bank account without a court order. Swift justice!

Conclusion

The payment of  taxes in Ireland are on a self assessment basis so unless you keep proper books it’s easy to fall into arrears. This is particularly true when when it comes to withholding VAT which  can be an tempting way to boost cashflow when sales are low.

Filing obligations can also be administratively burdensome and easy to forget particularly for a start up business who’s focus may be elsewhere. For this reason, we recommend you engage qualified chartered accountant. We can recommend one to you, or you can find one on the Chartered Accounts Ireland website

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