Corporation Tax in Ireland is charged on profits from trading income earned by Irish companies at a very favourable rate of 12.5%. This rate is well below other European countries where you can expect to pay upwards of 20% and this has made it a hot topic at European level.
There are three rates of Corporation Tax in Ireland – a 12.5% rate which applies to trading Income, a 25% rate which applies to non-trading Income (for example, rental income) and a 6.25% rate which applies to income from specific assets such as a computer programme, a patented invention or IP.
The 12.5% on trading income rate covers the majority of taxable income for Irish Companies.
Entitlement to the 12.5% Rate
There is no automatic entitlement to the 12.5% rate of Corporation Tax. To be eligible it must be demonstrated that the company carries out a business in Ireland and that the business is managed and controlled in Ireland. If you cannot show this eligibility then the company must pay the higher rate of 25%.
What does “Managed and Controlled” mean?
The Revenue Commissioners look closely at eligibility criteria and will make an assessment. Questions to ask in ascertaining where a company is “managed and controlled” include:-
- Where do the day-to-day activities of the business take place?
- Where are the management decisions of the business made?
- Where are the investment decisions of the business made?
- Where is the company’s operating address?
- Where do the key decision makers/directors reside?
- Where are the board meetings held? Does the company employ Irish staff?
Keeping these criteria in mind, evidence to support eligibility for Irish corporation tax can include:
- Trading with customers and suppliers who are based Ireland.
- Setting up and maintaining an active place of business in the jurisdiction.
- Holding board meetings in Ireland.
- Making all major decisions (investment, company policy, etc) in Ireland.
- Storing the physical company records such as the Company Register and the Company Seal in Ireland.
- Maintaining evidence of trading with other Irish businesses (eg. contracts, sales orders, purchases and invoices).
- Storing stock in Ireland.
It’s important to remember that not all of these requirements need to be present for a company to be eligible for the 12.5% rate. Each business will have a different set up and structure and a company will succeed in registering if it can demonstrate that on balance their primary activities and the central control and management of the business is in Ireland. With this in mind, if you’re relying on intangible evidence such as venues where decision making and business critical meetings take place, be sure to keep written records of such events – for example minutes of meetings, email calendar appointments, hotel booking confirmations, receipts and so on.
For more on this, take a look at the Revenue Commissioners own page on Company residency rules
Filing Corporation Tax
Corporation Tax is self assessed and the return must be filed and paid each year by the 23rd day of the 9th month following the company year end.
An Irish registered business must also file Preliminary Corporation Tax and this must be paid by the 23rd of the 11th month following the company year end. Where tax liability is not more than €200,000 a company can base its preliminary corporation tax on 100% of the previous years liability or €90% liability of the current year.
In addition, new companies are exempt from paying preliminary corporation tax for their first accounting period provided their liability is less than €200K.
Once registered in Ireland, the worldwide income of the company will attract Corporation Tax.
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