Understanding the Irish Corporation Tax is crucial to running a company in Ireland. As a company director, it’s important to know your responsibility towards paying tax and how it’s calculated as missing a tax deadline can result in penalties from the Revenue Commissioners, a stressful situation for any business owner.
However, knowing the tax reliefs you can claim to reduce your tax bill is important. If you qualify, these reliefs can significantly affect how much tax your company pays.
In this guide, we’ll discuss Corporation Tax in Ireland, the tax return deadline and calculation, and the reliefs you can claim to reduce your tax bill. If you need specific support, contact us today, and we’ll discover if our services are right for you.
Who pays Corporation Tax in Ireland?
Corporation Tax is a tax on companies with profits, income or gains through an Irish-incorporated company or a foreign-incorporated company trading in Ireland through a branch or an agency.
1) Irish incorporated company resident in the state
When determining if your company should be taxed in Ireland, you must determine where it is owned, managed, and controlled. Here are some questions to help you think about the tax residency of your company:
- Is 50% or more of the ownership of the company resident in Ireland?
- Do the directors make the critical strategic and policy decisions pertinent to the company’s business in Ireland? Directors should make decisions relating to financing, investments, expansion of the company’s business, and entering any material contracts should be made in Ireland.
- Are all meetings of the board of directors held in Ireland?
2) A foreign-incorporated company trading in Ireland through a branch
When a foreign-incorporated company has a branch, office, factory, or site for a construction project that lasts more than six months, this could lead to a Permanent Establishment and result in liability to Irish Corporation Tax.
In this situation, we recommend you discuss your situation in more detail with a professional accountant. Contact our team for a consultation on our accounting and tax services.
How is Corporation Tax calculated?
Corporation Tax in Ireland is calculated based on profits.
Below is a simplified explanation of the calculation;
- Determine your net profit: Start with the company’s total sales revenue for the year and deduct allowable business expenses. To minimise the net profit, consider all costs associated with running the business. The key here is to ensure any expenses deducted are in the company name – any other costs could be challenged by the Revenue Commissioners.
- Capital allowances: does your company have any assets it uses during its business, i.e. computers, office equipment, machinery or commercial vehicles? The costs of these assets can be written off over an eight-year period (12.5% per annum) to reduce your net profit and arrive at your taxable profit.
The company’s taxable profits will then be subject to a 12.5% or 25% tax rate. Ireland’s standard corporation tax rate is 12.5%, applied to trading or ‘active’ income. The 25% tax rate is for non-trading or ‘passive’ income—for example, income you receive from rental properties or investments.
Working with a professional accountant means they will expertly handle these calculations for you. If you are considering hiring a professional, contact us today, and we’re happy to help.
Is Corporation Tax due even if I didn't make a profit?
No, Corporation Tax is generally not due if a company does not make a profit. Corporation Tax is assessed based on a company’s taxable profit. No Corporation Tax will be due if a company’s expenses and deductions exceed its revenue, resulting in a net loss or zero profit.
However, please be aware that even if the company doesn’t make a profit and has no Corporation Tax liability, it must still meet filing requirements. This is sometimes called a Nil Corporation Tax Return.
When is the Corporation Tax Return due?
The Corporation Tax Return (CT1) is due and payable on the 23rd day of the ninth month after the company’s accounting period ends. For example, if your company’s accounting period ends on 31 December, the Corporation Tax return and payment will be due on or before 23 September of the following year.
An accounting period is usually 12 months long. A company must file an additional Corporation Tax return if it runs an accounting period for more than 12 months. A company period end can vary from one company to another and depends on legal requirements, business preferences and operational needs. If you’re unsure, please contact us today to discuss how we can help.
What are the penalties for missing the Corporation Tax Return deadline?
Failing to meet the filing and payment deadlines can result in penalties and interest charges. If the return is filed late but within two months of the deadline, a 5% surcharge will apply to any liabilities. If the return is filed more than two months after the deadline, a 10% surcharge will apply to any liabilities.
What reliefs can you claim to reduce your Corporation Tax bill?
Companies can use various reliefs and incentives to reduce their corporation tax liability. Some of the key reliefs are as follows;
- Start-Up Entrepreneur Relief: New companies can avail of a relief that reduces their Corporation Tax for the first five years it trades. The relief is available up to Corporation Tax liability of €40,000. Partial relief is due if your Corporation Tax liability is between €40,000 and €60,000. It is linked to the amount of employer Pay Related Social Insurance (PRSI) you pay on employees’ salaries, up to a maximum of €5,000 per employee to a limit of €40,000 overall.
- Research and Development Tax Credits: Companies can claim tax relief equal to 25% of research and development expenditure, which can be offset against Corporation Tax liabilities.
- Knowledge Development Box Relief: A company which qualifies under this regime may be entitled to a 50% reduction on profits derived from qualifying intellectual property. This means qualifying profits would be taxed at an effective rate of 6.25%.
- Group relief: Companies within the same group can transfer losses to other group members to offset their tax liabilities.
Do I need to file a Preliminary Corporation Tax return?
Preliminary Corporation Tax is an advance payment companies must make for the current accounting period. It estimates the corporation’s tax liability for the current accounting period.
Companies are generally required to make a Preliminary Corporation Tax payment unless they are a newly incorporated company in their first accounting period or if they expect to have no Corporation Tax liability for the current year.
A small company (corporation tax liability less than €200,000) that is not exempt from paying preliminary corporation tax must do so by the 23rd month preceding the end of the financial period. For example, if your accounting period ends on 31 December 2023, you must file and pay Preliminary Corporation Tax by 23 November 2023.
Small companies can base their preliminary tax for the accounting period on the following:
- 100% of their Corporation Tax liability for the previous accounting period, or
- 90% of their Corporation Tax liability for the current period
The amount paid cannot be less than the lower of these two calculations. Ensuring accurate calculation and timely payment is essential to avoid penalties and interest charges.
Understanding the nuances of Corporation Tax is essential for companies operating in Ireland. Businesses must accurately calculate their taxable profits and explore available reliefs to minimise tax liability. Don’t hesitate to contact us today to discuss your company’s Corporation Tax status, which could help contribute to its financial health.
Tom is a Fellow Chartered Certified Accountant (FCCA) and Chartered Tax Advisor (CTA) and is Accounting Team Manager at Accountant Online. Areas of expertise include Accounting, Compliance, Taxation relating to small business and company directors.