By Richard Lowry, 5th July 2010. (Updated 8th December 2010)
IMPORTANT NOTE: THIS TAX EXEMPTION HAS BEEN EXTENDED TO COMPANIES INCORPORATED IN 2011!
3 Year Tax Exemption for Start-up Companies
This scheme is being extended to include start-up companies which commence a new trade in 2011. The scheme is being modified so that the value of the relief will be 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.
Section 486C of the Taxes Consolidation Act has been introduced to promote and encourage new business activity in the traded sector of the Irish economy. Essentially the relief provides for an exemption from corporation tax currently at 12.5% (up to certain levels) for the first three years of operation i.e. You pay a 0% rate of Corporation Tax for an Irish Company for the first 3 years of business!.
3 Year Exemption – Eligible Companies
This is a new relief which you can claim if:
• You are a new company (incorporated in Ireland or another EEA State) since 14th October 2008
• Which commences a qualifying trade in 2009-2011
• 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
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 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.
In conclusion, this entitles many new company formations Ireland to avail of a 0% Corporation tax in Ireland for the first 3 years of business.
Richard Lowry AITI, ACMA is a qualified Tax Consultant and Chartered Management Accountant and is Managing Partner of 24/7 Accounts. 24/7 Accounts with offices in Dublin and Kilkenny provides accounting, payroll, tax advice and an outsourced financial controller service to a variety of clients.
See www.247accounts.ie or contact Richard at +353 (0) 818 313247