Subject to certain exemptions and reliefs, every company that is tax resident in Ireland is liable to pay corporation tax in Ireland charged on total profits wherever arising.
The applicable rate of corporation tax depends largely on the category of income to which the tax is to be applied. The current standard rate of corporation tax of 12.5% is applied in respect of all trading income. A higher rate of 25% is applied in respect of non-trading income and certain activities including working minerals, petroleum activities and dealing in or developing land, other than construction operations.
Start-Up Companies Relief
In 2008 a new corporation tax incentive was introduced in respect of new or start-up companies which commenced trading in 2009 onwards. The effect of the incentive is to exempt new/start-up companies from corporation tax for a period of three years from the date of commencement of business in the event that they meet certain conditions.
Section 34 of the Finance Act 2011 extended this 3-year tax relief for new companies starting up in 2011. The scheme was also amended such that the value of the relief is based on the amount of employer's PRSI paid by a company in an accounting period, subject to a maximum of €5,000 per employee and an overall limit of €40,000. Credit is also given for any employers' PRSI exempted under the Employer Job (PRSI) Incentive Scheme in respect of a company's employees in determining the amount of corporation tax relief available to the company.
If the amount of qualifying Employer's PRSI paid by a company in an accounting period is lower than the reduction in the corporation tax liability, the relief will be based on the lower amount. Furthermore, where the total corporation tax payable by a qualifying start-up company for an accounting period does not exceed €40,000, the aggregate amount of corporation tax referable to income and gains of the qualifying trade in that period will be reduced to nil or, if greater, to that aggregate as reduced by the amount of qualifying Employers' PRSI. Where the total corporation tax payable is between €40,000 and €60,000, the aggregate amount of corporation tax referable to income and gains of the qualifying trade will be reduced to an amount as calculated in accordance with the pre-existing marginal relief formula or, if greater, to that aggregate as reduced by the amount of qualifying Employers' PRSI. For accounting periods of less than 12 months, the various limits are proportionately reduced
As the primary purpose of the scheme, and in particular the changes brought in by the Finance Act 2011, is to provide relief for start-up companies generating employment it should be noted that the legislation includes several anti-avoidance measures. The most significant of these measures is the provision whereby a new company set up to perform activities which would constitute part of the existing trade of an associated company of such new company is excluded from the exemption. Additionally the trade carried out by the company claiming relief must be a qualifying trade pursuant to the terms of the legislation. In this regard it must be noted that several trades which are non-qualifying, for the purposes of the legislation, include service companies or trades involved in dealing or developing in land and extraction of natural resources.