Irish tax legislation provides very favourable tax treatment for companies wishing to commence trading in Ireland. Where certain conditions are met the relief provides that qualifying companies will be exempt from Irish Corporation Tax (“CT”) on trading income and certain gains in the first three years of trading where the trade starts in 2013 or 2014.
With a maximum CT credit of €40,000 allowed under the Irish tax legislation, it is therefore possible for a qualifying company to shelter up to €960,000 of trading profits from CT over its first three years of trading.
History Of The Relief
The relief was originally introduced into Irish tax legislation under the Finance Act 2009 and has been extended and modified in subsequent Finance Acts. The Irish Revenue Commissioners have issued two tax briefings on this attractive tax measure: Tax Briefing Issue 06/10 and Tax Briefing Issue 01/11
Conditions To Qualify For The Relief
The current conditions required to avail of the relief are as follows:-
The start up company must be incorporated in Ireland or in an EEA state, on or after 14 October 2008;
The start up company must carry on a qualifying trade, i.e. any trade other than the following trades:-
Trades or part of trades previously carried on by another person and/or succeeded by the start up company;
A trade if carried on by an associated company of the start up company would form part of an existing trade carried on by that associated company;
Trades involving professional services, (e.g. accountants, doctors);
Trades of land dealing, petroleum and mineral activities.
The start up company must be liable to Irish CT at the rate of 12.5%;
The amount of employers’ PRSI that the company has paid determines the amount of tax relief which can be claimed by the start up company. The maximum relief that can be claimed per employee is €5,000;
The start up company is entitled to a maximum amount of CT relief of €40,000 per annum for 3 years; and
Where the CT liability of the start up company is between €40,000 and €60,000, marginal relief will apply.
Once the relevant conditions are satisfied by the start up company, the tax relief applies for three years from the commencement of the new trade. Irish tax legislation, to be finalised in early 2013, proposes to allow unused credits to be carried forward, subject to certain conditions.
Example Of How The Relief Works
Start Up Limited (“Start”) has an accounting period end of 31 December 2012 and has a CT liability of €40,000 referable to income from its qualifying trade.
Details of Start’s employees and the Employer’s PRSI paid by Start during the period ended 31 December 2012 are as follows:
|Employee Details||Employers’ PRSI paid|
|Employee 2:||€7,000 (Capped at €5,000)|
|Employee 4:||€8,000 (Capped at €5,000)|
|Total Employers’ PRSI contribution:||€24,000|
|Qualifying Employer’s PRSI||€19,000|
Based on the qualifying employers’ PRSI of €19,000, the amended CT liability for Start on income from its qualifying trade is calculated as follows:
|Original CT liability on income referable to the qualifying trade||€40,000|
|Less: Relief granted under the Irish tax legislation||(€19,000)|
|Net CT liability on income referable to the qualifying trade||€21,000|
Start has therefore sheltered €152,000 (€19,000/ 12.5%) of its trading profits from Irish CT for the period ended 31 December 2012. The relief will be claimed on Start’s CT return for the period ended 31 December 2012.
Irish Tax Incentives
Ireland’s attractive tax regime contains incentives which encourage start up companies to commence trading in Ireland. Where the start up company satisfies certain conditions, no Irish CT will be payable by the start up company on income and gains arising from its trade in the first three years of trading.
Please note that this commentary does not purport to be a comprehensive review of the Irish tax treatment of Ireland’s favourable tax regime for start up companies. Detailed appropriate advice should be taken before any particular transaction is entered into.