The Tax System for Companies in Ireland

There is a totally separate tax system for companies when compared to sole traders.  Ireland follows the same system as the UK. The tax that is chargeable on company profits is called Corporation Tax and is charged at 12.5% on the profits of the company.

The same rules for Income Tax for sole traders apply to companies in relation to allowable expenses.  In other words, if an expense is deductible from your income as a sole trader then it is deductible against the income of a company when charging Corporation Tax.

Once again this is similar to the UK.  If you already have a business in the UK then you know mainly what is deductible, and mostly the same rules apply in Ireland.  To be deductible an expense must be ‘’wholly, necessarily and exclusively for the purposes of the business’’.

Profits for a sole trader versus salary for directors of a limited company

For a sole trader, you pay Income Tax on all your profits for the year – whether you take them out of the business or not. This means that in bad years, you pay very little tax, but in good years you get hit with full tax on everything – whereas you could leave money in a limited company and only pay 12.5% on the money you leave in the company.

Pension contribution limits for sole traders versus company directors

For an Irish sole trader, you are limited in the amount you can pay into a pension by reason of your age.  If you are under 30, you can contribute 15% of your profits, between 30 and 39 max contributions are 20%. As you enter your 40s this rises to 25%.  Between 50 and 54 your max level of contributions are 30% and between 55 and 59 it’s 35%. Finally, 60 years and over means you can pay 40% of your earnings into a pension. 

However, if you have a limited company and you are an Irish Income Taxpayer you can put as much as you like into a pension fund, up to a max of €2 million, and subject to earnings restrictions i.e. you can only take earnings of €115,000 into account when applying for relief in Ireland.  In the UK the situation is you can get relief for all pension contributions at the highest rate of Income Tax you pay ( Marginal Rate ).

Salaries for others in the business

Sole trader

As a sole trader, you can employ family members to work for you, but the salaries you pay have to be related to how much a comparable worker in the same job could get from another company. However, if a family member acts as a director in an Irish limited company, you are not as restrained in the amount that you can pay.  The person can contribute to the business and as an officeholder, they can take whatever the other director or directors view as appropriate.

Salary for you as a director

An employer who employs you will have to pay Employers PRS – equivalent to National Insurance in the UK – which is 10.95% of your salary.  However, if you are a director employee you don’t have to pay this contribution. This is a major cost advantage for you over other competing companies as you can take that extra 10%.

Income Tax Return

If you own more than 15% of the shares of a limited company and you are a taxpayer in Ireland you will have to file an Income Tax Return.  This can be a bit of a chore, but fortunately, if you hire us to look after your affairs, we will do this for you as your accountants each year.  Otherwise, you have to get all your earnings and file an Income Tax Return with Revenue.

Is Ireland a tax haven?

Ireland rejects being called a tax haven. Ireland is not considered a tax haven by the E.U or the O.E.C.D. whereas academic papers and Brazil label Ireland a tax haven. 

Does Ireland have high taxes?

Ireland is a low tax country. If you have a low salary then the amount of tax that you pay is relatively low compared to other countries. If you have a high salary, then you will end up paying a higher rate of tax. Have a look at this chart provided by the Irish tax institute to compare Ireland with other countries in the O.E.C.D.