By Andrew Lambe, 3rd January 2012. (Updated 13th June 2017)
The Irish Revenue Commissioners have recently announced that the 3 Year Tax Exemption for Start-up Companies has been extended to companies registered in Ireland until 31 December 2018.
The scheme which provides relief from corporation tax on the trading income and certain gains of new start-up companies in the first 3 years of trading is being extended to include start-up companies which commence a new trade until the end of 2018.
The scheme was modified in 2013 so that the value of the relief is linked to the amount of employers’ PRSI paid by a company in an accounting period subject to a maximum of €5,000 per employee. If the amount of qualifying employers’ PRSI is lower than the reduction in corporation tax liability otherwise applicable, relief will be based on the lower amount.
3 Year Exemption – Eligible Companies
This is a relief which you can claim if:
• It is a new company (incorporated in Ireland or another EEA State)
• Which commences a qualifying trade between 2009-2018
• Whose corporation tax liabilities do not exceed certain levels
You must commence a qualifying trade. A qualifying trade does not include:
a) A trade previously carried on by another person. The trade must be a new business and not the transfer of an existing business or part of a business from a sole trader or previous company
b) An excepted trade (subject to 25% tax). Profits from non-trading activities such as rental and investment income are taxed at 25% and do not qualify for the relief
c) A trade carried on entirely outside Ireland and whose profits are subsequently taxed at 25%. An Irish incorporated company must be managed and controlled in Ireland and have “substance” in Ireland in order to qualify for the 12.5% corporation tax rate and in turn the exemption as outlined in this article
d) A trade dealing in or developing land or exploration and extraction of natural resources
e) A trade of a “service company” that would be subject to a professional companies profits surcharge as per S441 TCA. Effectively, the “service companies” that do not qualify for this tax relief include close companies (5 or fewer shareholders/ directors) whose businesses consist of the carrying on of a profession or the provision of professional services, or of exercising an office or employment. These “service companies” also include businesses that provide services to professionals such as an accountancy or solicitor firms.
f) A trade in the fishery or aquaculture sectors
g) A trade active in the primary production of agricultural products
h) A trade active in the coal sector
This relief qualifies under EU de minimis aid regulations and Revenue may disclose information on the tax relief claimed under Section 486 to a government department and agencies paying other de minimis aid and if requested, to the EU Commission.
Claims for start-up company relief are made as part of the normal self-assessment basis of tax are made under panel 9 of the annual corporation tax return form.
Knowledge Development Box (KDB)
A company which has engaged in Research & Development (R&D) in Ireland and which now earns profits from patents or copyrighted software resulting from that R&D, can avail of tax relief under the KDB. The profits associated with the Irish R&D will be taxable at an effective rate of 6.25%. For more on this new incentive, please see the blog section of our website.
How do I proceed?
In conclusion, this exemption entitles many new company formations Ireland to avail of a 0% Corporation tax in Ireland for the first 3 years of business. For more information on this and how to register a company in Ireland, please don’t hesitate to contact the experts at Company Bureau.
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