- Rates:
- 10% Corporation Tax – Manufacturing Relief
- Corporate Group Relief
- Close Companies
- Corporate donations
- R & D Credit
- New Company Start ups
- Payment and Compliance
- Large Companies
- Small Companies:
- New Companies
- Group Companies
- Filing
- Exemption for Disposal of Shareholdings
- Payment Dates for Capital Gains Tax
- Penalties
Companies resident in Ireland are liable to corporation tax on profits wherever arising.
Rates:
The standard rates of corporation tax may be summarised as follows:
| Trading Income | Non-Trading Income | |
| 2010 | 12.5% | 25% |
The 25% rate applies to trading income from dealing in and developing land other than fully developed land. A 20% rate applied to trading income from dealing in residential land up to 2008, from 2009 these profits are subject to tax at the individuals’ marginal rate or the 25% tax rate for Companies. In addition a windfall tax of up to 80% may apply to certain disposals of development land,
Trading losses and charges subject to the lower rate of tax may be offset against income other than that which is taxed at the lower rate on a “value and credit basis”. Manufacturing losses and charges can be used in a similar fashion.
The effect of this is basically to give a credit against corporation tax payable for the value of the losses or charges.
No loss relief or group relief on a value basis applies where the Corporation tax refers to profits of the policy holders of a life assurance company.
10% Corporation Tax – Manufacturing Relief
A 10% rate of corporation tax applies to manufacturing activities carried on in Ireland until 31 December 2010 where the manufacturing trade was carried on prior to July 1998 or where the manufacturing trade was approved for grant assistance by the I.D.A. on/before 23 July 1998.
The term manufacture is not defined although the legislation provides that certain activities are excluded e.g. preservation, pasteurisation, cutting, mixing etc.
Corporate Group Relief
Losses may be surrendered within a group or consortium subject to certain restrictions, which apply to losses in general. This applies to both Ireland and EU/EEA resident participants and to non EU residents in certain circumstances.
Close Companies
A surcharge of 20% is payable on the undistributed investment and rental income of a close company. Professional service companies are liable to a surcharge of 15% on one-half of its undistributed trading income and a surcharge of 20% on the undistributed rental and investment income.
The close company surcharge does not apply in situations where a company is the recipient of a dividend from a foreign subsidiary, and the company would be exempt from capital gains tax on the disposal of the shares in that subsidiary provided it is located in an EU or tax treaty country.
Where a close company settles money to a trust on or after 1 January 2011, it will be treated as a distribution from the close company to the trustee of the trust, and will be subject to tax as a dividend in the hands of the trustee. In addition any sum received out of the settlement to the member of the close company or by the relative of such an individual will be chargeable to Income tax.
A close company that pays a dividend to another close company may jointly elect for the dividend “not” to be treated as a distribution. In effect this provides relief where a trading company pays a dividend to an investment/holding company as the income will not be treated as investment income in the holding company which will eliminate the close company surcharge.
Tip: Care needs to be exercised when making a payment from one investment company to another as this simply transfers the close company problem from one company to another.
Corporate donations
Companies are allowed deduct, as a trading expense, donations made to charities and other approved bodies. The minimum amount of donation in any year is €250. The following are some of the bodies in which payments to will qualify for corporation tax relief:
- A body approved for education in the arts;
- A body approved as an eligible charity;
- An institute of higher education, or a body established for the sole purpose of raising funds for such an institution;
- Certain secondary level institutions;
- The Equine Foundation;
- An approved sports body for an approved project;
R & D Credit
Incremental research and development expenditure qualifies for a tax credit of 25%; this is in addition to a tax deduction at 12 ½ %, giving an effective write off for R&D expenditure of 37½%. Claims must be made within 12 months of the end of the period in which the expenditure is incurred.
A repayment of excess R&D tax credits is available over a three year period. The repayment is limited to the higher of the total corporation tax payable by the company in the previous ten years or the payroll tax liabilities of the company for the period in which the R&D is incurred.
R&D expenditure may be carried back to the prior period to generate a cash refund.
The credit will be available for incremental expenditure incurred in any EU country, where the expenditure is not tax deductible in any other EU country.
The reference year for determining the incremental expenditure for all years up to 2014 is 2003, for years after 2014 the reference year it is ten years before the end of the year of the claim i.e. for 2014 the base year is 2004. To establish the incremental spend by reference to the base year, trades may be separated where they are carried on in separate geographic locations where they are located more than 20Kms apart. This allows a company to cease carrying out R&D activities, or dispose of an R&D facility in a particular location without impacting on the total R&D spend from other R&D centers.
Expenditure on R&D carried out by a third level college on behalf of the company or group also qualifies if it does not exceed 5% of the company or group’s own R&D spend. Subcontracted costs, to a maximum of 10% of total qualifying expenditure, are also eligible for the tax credit.
A tax credit is also available for construction or refurbishment work carried out on a building used for qualifying research and development activities. The credit is equivalent to 25% of the qualifying cost of construction or refurbishment and may be claimed in full in the year in which the expenditure is incurred.
New Company Start ups
An exemption from corporation Tax for the first three years of trading applies to certain new start up companies.
Where a company is incorporated after 14 October 2008 and commences to trade in 2009, 2010, or 2011 it will be exempt from Corporation Tax and capital gains tax on the disposal of assets used for the purposes of the new trade. The exemption is subject to a liability threshold, and no relief will be available where profits exceed €60,000.
| Corporation tax Liability for the period | Availability of Relief |
| < €40,000 | Full exemption |
| €40,000 to €60,000 | Marginal relief |
| > €60,000 | Fully taxable |
The relief is restricted to new trades and does not apply where the trade was previously carried on by another person, or where the trade, or part of the trade was carried on by an associated company.
The relief does not apply to companies carrying on professional services, nor does it apply to companies which carry on a trade of :
- land dealing,
- petroleum and mineral activities,
- aquaculture or agriculture,
- coal,
- road freight operations,
- export related activities,
- undertakings in difficulty
In addition, in order to comply with EU requirements it should be noted that Revenue may disclose details of relief granted under the scheme.
Payment and Compliance
Large Companies
(a company with a corporation tax liability of €200,000 or more in the preceding year):
For accounting periods commencing on or after 14 October 2008
6 months before the end of the accounting period (day 21 of the 6th month)
- 50% of the previous years final liability
- 45% of the current years final liability
One month before the end of the Accounting period (day 21 of the 11the month)
- 90% of the final liability (after taking into account the payment five months earlier)
Filing Date (21st day of the 9th moth following the accounting period end)
- Balance of any tax due
A company’s preliminary tax liability includes the corporation tax, close company surcharge and income tax liabilities for the accounting period, it also includes tax on chargeable gains, except for those arising from disposals of development land. To ensure interest charges will be avoided, the preliminary tax payment (the aggregate of the first and second installment) must represent at least 90% of the final tax liability for the accounting period.
Special arrangements exist to take account of chargeable gains arising in the last month of an accounting period and for accounting periods of one month’s duration.
Small Companies
A small company i.e. where last years Corporation tax liability was less than €200,000 (€150,000 for accounting periods ending before 6 December 2007), may base its first instalment on 100% of the previous years’ liability.
New Companies
Where a company is a new company with a corporation tax liability of less than €200,000 for the first accounting period, it will not be required to pay preliminary tax for that period. A new company may pay tax for the first year when filing it’s tax return.
Group Companies
Where companies are large companies and members of the same Group, where one company has satisfied it’s preliminary tax obligations and paid in excess of 90% of the final corporation tax liability, and another company has not paid sufficient preliminary tax, then the excess paid by one company may be transferred to the other company to limit any exposure to interest.
Filing
The corporation tax return must be filed within eight months and 21 days of the Accounting period end otherwise a surcharge will arise.
Information included in Return
A company is required to disclose information in relation to certain incentives/relief’s on their annual tax return, the relief’s to be detailed will be highlighted on the return forms.
Failure to provide the relevant information may result in a penalty of €950, as well as a surcharge of 5% of the tax due subject to a maximum of €12,695.
Exemption for Disposal of Shareholdings
An exemption for Irish based companies from Capital Gains Tax on the disposal of shares in a subsidiary company. To qualify for the exemption, a 5% holding of ordinary shares must be held within a two year period of disposing of the shares. The shares must be held for a period of at least twelve months and must be held in a company located in an EU or treaty country.
The company being disposed of must be a trading company, or the holding company of a trading group (i.e. the holding company together with all other companies in which it has a 10% interest must consist wholly or mainly of trading activities).
Payment Dates for Capital Gains Tax
Payment of capital gains tax relating to a disposal of development land are treated in the same way as a disposal for an individual.
For disposals of assets other than development land, the payment and filing dates are as outlined above.
Special rules apply where a gain is made in the last month of the accounting period, this allows for top up payments to be made without an exposure to interest.
Penalties
The surcharge for late filing and the restrictions on claims for certain losses and relief’s are as follows:
| Date of Filing | Surcharge | Restriction |
| Return filed within 2 months of expiry of deadline |
5% of tax payable maximum €12,695 |
25% of loss or relief maximum €31,740 |
| Return filed 2 months or more after expiry of deadline |
10% of tax payable maximum €63,485 |
50% of loss or relief maximum €158,715 |
From 1 January 2009, the payment and filing deadlines may be extended to the 23rd of the month where the return is filed electronically via ROS the Revenue online system.
Mandatory Reporting
With effect from 17 January certain transactions which have the main benefit of obtaining a tax advantage will be required to be reported to Revenue. The first disclosure due date is 15 April 2011
