Corporation Tax in Ireland
Scope of Corporation Tax
All companies resident in the State and all non-resident companies that carry on a trade in the State through a branch or agency, subject to specific exceptions, are liable to corporation tax.
A company that commences to carry on a trade, profession or business is obliged to deliver to the Revenue Commissioners a written statement within thirty days of commencement containing such information as the name of the company, its registered office, the name of the secretary and the nature of the trade, profession or business.
Corporation tax arises at 12.5% on trading income. As to what income qualifies as trading income see Guidance on Revenue Opinions on the Classification Of Activities as Trading. Corporation tax arises at 25% on non-trading income. Non-trading income includes includes income chargeable under Case III (eg interest, foreign income), Case IV (patent royalties) and Case V (rental income from land & buildings in the State) of Schedule D. Non-trading income also includes certain land dealing activities and income from working minerals and petroleum activities.
Finally, corporation tax arises at 10% on the trading profits of manufacturing companies and certain IFSC and Shannon Airport Zone companies.
Basis of Assessment
Corporation tax is assessed on the profits of a company’s accounting period at the rate of tax in force during the accounting period. Where the rate of corporation tax changes during an accounting period, the profits of that period are apportioned on a time basis and taxed at an appropriate rate for the purpose of determining the corporation tax charge for the whole accounting period. An accounting period is a period of not more than 12 months and is normally the period for which a company makes up its accounts.
R&D Tax Credit
A 25% tax credit is available for qualifying research and development expenditure for companies engaged in qualifying research and development undertaken within the European Economic Area. Any unused credits may be set off against corporation tax from previous years, carried forward against future corporation tax liability or refunded by Revenue. The base year for calculating the incremental qualifying R&D expenditure incurred is 2003.
A credit is also available for expenditure incurred on new/refurbished building used in whole or in part for R&D purposes. (There must be a minimum level of 35% R&D use over a 4 year period for the building to qualify.)
The R&D credit must be claimed within 12 months of the end of the accounting period in which the qualifying expenditure was incurred.
Payment of Corporation Tax
A company is obliged to make a preliminary tax payment equal to or greater than 90% of its final liability for an accounting period. The preliminary payment is due not later than the 21st day of the month preceding the end of the accounting period. The balance of tax is due within nine months of the end of the accounting period, subject to the 21 day rule referred to above.
Three Year Tax Exemption for Start up Companies
Start-up Companies who commenced trading on or after 1 January 2009 and whose tax liability for each year does not exceed €40,000 are exempt from tax (including capital gains tax) in each of the first three years of trading.
Preliminary Tax Payment Dates for Large Companies
A “large company” is defined as a company whose corporation tax liability in the preceding accounting year exceeds €200,000. The preliminary tax payment for large companies occurs in two instalments: (1) the first instalment is payable in the 6th month of the accounting period (by the 21st day of that month). This payment must equal either 50% of the corporation tax liability for the preceding accounting period or 45% of the corporation tax liability for the current accounting period; and (2) the second instalment is payable in the 11th month of the accounting period (by the 21st day of that month) and the amount payable will bring the total preliminary tax paid to 90% of the corporation tax liability for the current year.
Dividends and other Distributions
Dividends and other distributions (including certain types of interest) are not deductible in computing trading profits. Dividends and other distributions paid by a company resident in the State are not chargeable to corporation tax when received by a company resident in the State.
Interest and other Annual Payments
A company is normally entitled to deduct payments of interest (other than interest treated as a distribution), royalties and other annual payments made by it in computing its corporation tax liability. In certain circumstances the company may have to deduct income tax from the payments and account for it to Revenue.
Patent Royalties
Full relief from corporation tax is allowed in respect of royalties derived by an Irish-resident company in respect of a patent if the work leading to the grant of the patent was carried out in the State. The royalties must be paid in connection with a manufacturing process or by a party unconnected to the company to qualify for relief. Relief from income tax is, in certain circumstances, available to shareholders in respect of all or part of any distribution made by a company out of its royalty income.
Company Capital Gains
Capital gains, other than gains from development land, are included in a company’s profits for corporation tax purposes and are charged to corporation tax under a formula that takes into account the appropriate rate of capital gains tax. Gains by the companies from the disposals of development land are chargeable to capital gains tax and are not, therefore, included in profits chargeable to corporation tax (see section on capital gains tax).
A company that ceases to be resident in the State is treated as having disposed of all of its assets at their market value when it so ceases. Assets that continue to be used in Ireland by a branch or agency of the company or where the company is ultimately controlled by residents of a tax treaty partner country are not subject to this provision.
