Are you considering establishing a business in Ireland? Do you have queries on how much corporation tax is in Ireland? Are you specifically looking to understand the 12.5% corporation tax rate? This guide dives into the essentials of Corporation Tax in Ireland for 2023, helping you navigate the complexities of tax rates applicable to your enterprise.
Corporation Tax in Ireland is a prevalent topic for new businesses looking to set up here.
The Corporation Tax rate for most Irish incorporated companies is just 12.5%; in comparison, it’s over 20% in many other European countries. Ireland’s corporate tax rate benefits setting up a company in Ireland, but it shouldn’t be the sole basis of your decision.
Tax is a complex area of managing a company. Before setting up in Ireland, you must know the intricacies of qualifying for Corporation Tax in Ireland.
Throughout this guide, we explore the fundamental aspects determining a company’s eligibility for Ireland’s corporate tax rate, including residency status, trading activities, and income sources.
Understanding Corporation Tax in Ireland and Its Rates
Not just any entity is liable for Corporation Tax in Ireland. It’s specifically designed for entities classified as 'Tax Resident Companies' in Ireland. This includes both locally incorporated entities and international businesses with significant management operations within Ireland. Understanding whether your business meets these criteria is crucial for compliance and enjoying Ireland's competitive corporate tax rates. A company that is a tax resident in Ireland is liable for Irish Corporation Tax. This tax is paid on its worldwide income/profits - not just the profits generated in Ireland.
What are the rates?
-
12.5% Corporation Tax
This applies to trade income or ‘active’ income only. It is the profits you obtain from trading or selling your products or services.
-
25% Corporation Tax
This is for non-trading or ‘passive’ income. This is income you receive from rental properties or investments, for example.
-
6.25% Corporation Tax
This relates to profits under the Knowledge Development Box. For example, income from qualifying patents or computer programmes.
Ensuring Your Business Qualifies as a Tax Resident in Ireland
There are two main tests of whether a company is tax resident in Ireland. A company must be incorporated in Ireland and ‘centrally managed and controlled’ in Ireland.
This usually means that the majority of directors are residents of Ireland. If your company is set up and ‘actively trading’ in Ireland, you will likely qualify for the 12.5% Corporation tax. Your customers don’t all have to be in Ireland – the company is free to trade globally. You do not necessarily have to pay all the company income into an Irish account; for example, it may come in US dollars through PayPal.
Who Pays Corporation Tax in Ireland?
Not just any entity is liable for Corporation Tax in Ireland. It’s specifically designed for entities classified as ‘Tax Resident Companies’ in Ireland. This includes both locally incorporated entities and international businesses with significant management operations within Ireland. Understanding whether your business meets these criteria is crucial for compliance and enjoying Ireland’s competitive corporate tax rates.
How to prove your company is tax resident in Ireland?
When you have an Irish company, you must keep all your books and records for a minimum of six years, so your records should show that your company is centrally controlled and managed in Ireland. (I.e. ‘actively trading’ in Ireland).
This may mean more than opening an office in Ireland, incorporating your business here, or using an Irish accountant. Revenue critically assesses your company to identify where your company is centrally controlled and managed. Ensure to 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 to manage their cash flow, invoices, bills and receipts. However, if you’re concerned about proving your active trade in Ireland, you may consider keeping more records than what’s required for bookkeeping purposes.
How to determine if your company should be taxed in Ireland?
-
Where is the company policy decided?
This refers to the place where important decisions about the company's rules and guidelines are determined. Where are important agreements with suppliers, clients, or partners made and documented?
-
Where is the company's head office?
This refers to the central hub for administrative and managerial functions. The residence of the directors is noteworthy and the location of Board of Directors' meetings is significant as it determines where important discussions and decision-making sessions occur.
-
Where are your employees?
The distribution of employees across the globe can indicate where most of your operations take place. If you're a director and don't live in Ireland, it's worth keeping records of your flights into the country. This helps with tracking your travel history and making sure you're meeting any residency or tax requirements.
-
Where are your customers and suppliers?
By keeping track of invoices and having a well-defined stock storage location, you can demonstrate your trading activities with Irish businesses.
What records can you keep to show tax residency in Ireland?
Each situation can be different, but for illustration purposes, here are some examples of records you can provide to show tax residency in Ireland:
- Rent payments or invoices for office space. Show that you have and maintain an office or head office in Ireland – not just a mail-forwarding address.
- Flight records or proof of address documents can that your board of directors live in Ireland or has a strong presence here.
- Minutes of meetings can clearly show that you have held the meeting in Ireland
If you plan on moving to Ireland in the near future, your accountant can work with you and help you establish the best ways for you to prove tax residency in Ireland.
Irish Corporation Tax examples
Let’s look at three different scenarios to illustrate the above points.
Lukas is an IT programmer from Lithuania.
- The company was incorporated in Ireland.
- An official Irish address is registered for the company.
- All business is conducted in Lithuania.
- There is no office or staff located in Ireland.
- No board meetings or other company meetings are held in Ireland.
- The company is clearly not managed or controlled from Ireland and will not qualify for 12.5% Corporation Tax.
Mia is a software engineer from Croatia.
- Her clients are based in Croatia, Ireland and elsewhere.
- Mia lives in Dublin and has an office at her home too.
- Her company board meets in Dublin.
- She keeps all her business records and accounts here.
- It seems clear that her company is centrally controlled and managed from Ireland and should qualify for 12.5% Corporation Tax.
Shauna runs her own international business consultancy.
- She travels and has office addresses in New York and London, but mainly resides in Cork.
- Her head office and staff are in Cork.
- She has bank and PayPal accounts in several countries. However, she maintains and keeps her records here in Ireland.
- Most of her board of directors are Irish, and the board meets in Ireland.
- Her company is centrally controlled and managed from Ireland and should qualify for the 12.5% Corporation Tax.
Corporation Tax Return - self-assessment
You must know the different tax rates so you know the correct rate when filing and paying your Corporation Tax return. This will help you avoid any interest penalties or under-declaring your tax bill. Corporation Tax returns are prepared on a self-assessment basis through Revenue Online Service (ROS).
Most businesses incorporated in Ireland, actively engaging in trading activities within and outside of Ireland, are likely to benefit from the advantageous Ireland company tax rate of 12.5%. Yet, assessing your company’s specific activities and income sources against Ireland’s tax laws is critical to ascertain the correct corporation tax Ireland rate applicable to you. However, it’s important to consider where your directors are resident (because this often means that this is where the company decisions are made and, therefore, where the business is ‘centrally managed and controlled’) and where the company is carrying out its trade.
For example, it may be hard to justify any “active” income in the state if you set up a company in Ireland but don’t hire staff in Ireland, have no suppliers or customers in Ireland, and don’t make any strategic decisions here.
You can ask an accountant about your own situation. However, don’t be surprised if they ask you multiple questions to establish what tax rate you should pay. It’s vital to ensure your company is correctly filing its tax returns and filing in the correct jurisdiction.
Frequently Asked Questions
Do Irish branches pay Corporation Tax in Ireland?
Irish branches are liable for 12.5% Corporation Tax on profits connected with the business of that branch.
What defines active trading for Ireland’s corporate tax?
Active trading for Ireland’s corporate tax purposes refers to the conduct of a trade or business within Ireland. It encompasses the regular buying and selling goods or services or providing services, where activities are substantial and conducted continuously. To be considered engaged in active trading in Ireland, a company must meet specific criteria, including having a physical presence in Ireland, employing staff, and carrying out substantive business activities within the country.
How does Ireland’s corporate tax rate compare internationally?
Ireland’s standard corporate tax rate is 12.5%, which is historically low compared to many other countries. However, the amount of tax you pay will vary due to tax incentives, deductions, and credits available to businesses. Comparatively, corporate tax rates in different countries vary widely; for instance, Germany is 15%, France is 28% and Spain is 25%. Ireland’s relatively low corporate tax rate has been a major attraction for foreign investors. However, it has also been a point of contention in international tax discussions, particularly within the European Union and among other developed economies.
Larissa is a Fellow Chartered Accountant (FCA) and is the CEO of Accountant Online, which specialises in company formation, company secretarial, annual accounting services, bookkeeping, tax, and payroll services for micro and small companies in Ireland and the UK.
