Corporation Tax | 2010 | Summary
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Charge to tax
If you are an Irish resident company, you are chargeable to corporation tax on your worldwide profits and capital gains (s 21). Any development land gains you make are chargeable to capital gains tax (s 649A).
Corporation tax is charged for each financial year, i.e., calendar year. Corporation tax assessments are made by reference to your accounting period, and if your accounting period straddles two financial years, the profit is apportioned accordingly, to be charged at the appropriate rates (s 26).
Corporation tax is charged on the full amount of your profits arising in the accounting period, whether or not such profits are received in the Republic of Ireland. In computing your corporation tax liability, only legitimate deductions may be made (s 27).
Residence
A company is resident where it is centrally managed and controlled.
If you are a non-resident company, you are not chargeable to corporation tax unless you have a branch or agency through which you trade in the Republic of Ireland (s 25). If you do trade through a branch or agency, you are chargeable to corporation tax on:
(a) any income arising through the branch or agency,
(b) any chargeable gains derived from land, mineral rights, or assets used for the branch or agency trade in the Republic of Ireland.
If you are an Irish registered company, you are automatically treated as resident in the Republic of Ireland for tax purposes (s 23A). This rule does not apply if:
(a) you are ultimately controlled by persons resident in an EU State or tax treaty country, or
(b) you are regarded as non-resident under the terms of an Irish tax treaty.
Corporation tax rates
Start-up companies
If you are a start-up company, and you are not a service company or a company whose income is taxed at 25% (see below), you can get a three year exemption which reduces your corporation tax charge (up to €40,000 per annum) to nil. You can get marginal relief if the charge is between €40,000 and €60,000. In practical terms, this means a start-up company can earn net profits of €320,000 (€40,000 divided by 12.5%) and pay no tax.
Standard rate
The standard rate of corporation tax (s 21) is 12.5%.
Foreign dividends paid from trading profits are taxed at 12.5% (previously 25%). If the dividend is not paid from trading profits, it is taxed at 12.5% provided:
(a) 75% or more of the paying company’s profits are trading profits, or derived from trading profits arising in EU States or treaty countries.
(b) 75% or more of the recipient’s assets, on a consolidated basis, must consist of trading assets.
Where the recipient company owns not more than 5% of a paying company based in an EU State or treaty country, the dividend is also taxed at 12.5%.
Excess foreign tax credits in respect of dividends taxed at 12.5% are not available for set-off against dividends taxed at 25% (but not vice versa).
Higher rates
The following types of income are taxed at 25% (s 21A):
(a) untaxed interest and income from foreign property (Case III income),
(b) miscellaneous income not taxed under any other heading (Case IV income),
(c) rental income (Case V income), and
(d) income from mining activities, petroleum activities, and dealing in land.
10% rate
The main relief from corporation tax for many years was manufacturing relief (“the 10% rate”), which reduces the tax rate on profits of manufacturing (or deemed manufacturing) companies to an effective 10% rate (s 443).
Companies that were carrying on (non-Shannon, non-IFSC) manufacturing before 23 July 1998, or which were grant-approved on or before 31 July 1998, remain entitled to the 10% rate until its expiry on 31 December 2010 (s 442).
Exemptions
The main income tax exemptions that apply for corporation tax are:
(a) Income of recognised charities (s 207, 208).
(b) Income from stallion fees (s 231) and greyhound fees (s 233). This exemption ceased from 31 July 2008.
(c) Income from commercial forestry (s 232).
(d) Income from patent royalties (s 234).
Reliefs
The other main reliefs from corporation tax are:
(a) charges, i.e., interest, annual payments and royalty payments (s 243),
(b) interest on money borrowed to invest in another company (s 247), but such relief is denied in the case of lending between connected companies if there is a mismatch between interest lent and claimed,
(c) investment in films (s 481),
(d) investment in renewable energy (s 486B),
(e) expenditure on “pure” research and development (s 766) - this amounts to a 25% tax credit against your corporation tax liability and you can claim repayment of up to 33% of unused tax credit not fully used in the first accounting period,
(f) gifts to approved bodies and charities (s 848A), and
(g) gifts to approved sports bodies to fund capital projects (s 847A).
Losses
Trading loss
Carry back
You may carry back a trading loss for offset against profits of any kind in the immediately preceding accounting period of equal length. A claim must be made within two years of the end of the accounting period in which the loss occurs (s 396(9)).
You may carry back a loss in your final year of trading (a terminal loss) for set-off against profits of the three immediately preceding years (s 397). This may give rise to a repayment of tax.
Carry forward
You may carry forward an unused trading loss against trading profits of the next and later accounting periods (s 396).
You may carry forward a Case III loss (for example, in the case of a foreign trade) against Case III income of the next and later accounting periods.
You may carry forward a Case IV loss against Case IV income of the next and later accounting periods.
Ring-fencing of losses (also applies to charges and group relief)
You may relieve a 25%-taxed profit with a 12.5% trading loss, but only on a value basis.
Rental loss
You may carry back a Case V loss against rental profits in an immediately preceding accounting period of equal length.
You may carry forward an unused Case V loss against income of the next and later accounting periods (s 399).
Capital loss
You may carry forward a capital loss against capital gains of future accounting periods. You may not set such a loss against development land gains (s 653(1)).
You may offset a development land loss against a development land gain arising in the current accounting period, and carry forward any unused balance to future accounting periods (s 653(2)).
Group relief
You may surrender an unused trading loss to a company within the same 75% group (s 420).
If you begin to carry on a trade previously carried on by another company, and you own not less than 75% of that company’s trade, you may claim the predecessor’s unrelieved losses (s 400), but “loss-buying”, i.e., acquiring the accumulated losses of a near dormant business, is disallowed (s 401).
Self assessment
You must pay preliminary tax one month before the end of your accounting period (s 958(2)).
You must also file a corporation tax return on or before the return filing date, i.e., the last day of the ninth month after the end of your accounting period (s 951).
If you are a “small” company (with a tax charge below €200,000), you may pay preliminary tax based on your previous year’s liability (which may be nil if it is your first year of trading). Preliminary tax payable before the end of the accounting period need not take account of unrealised foreign exchange gains and losses arising in the final two months of the period, provided you make a top-up payment one month after the end of the accounting period.
If your liability in the previous accounting period (AP) exceeded €200,000, you must pay in two instalments:
(a) the first is payable on the 21st day of the sixth month of your AP (21 June for a calendar year AP),
(b) the second is payable on the 21st day of the eleventh month of your AP (21 November for a calendar year AP).
If you file and pay electronically, the 21st becomes the 23rd.
To avoid interest and surcharge, your preliminary tax payment must equal 90% of the ultimate liability. However, if the preliminary tax meets the 90% test in relation to tax on income (i.e., profits excluding chargeable gains), you may pay any balance within one month of the end of the accounting period (s 958(4C), (4E)).
You must pay any remaining balance on or before the return filing date (s 958(3)).
If you do not distribute investment or rental income (s 440) to your shareholders, you are subject to a 20% surcharge on undistributed amount. If you are a service company, a 15% surcharge applies to the aggregate of your undistributed investment and rental income and half your trading income (s 441).
Revenue powers
See Administration, Anti-avoidance, Information, Audit and Collection under INCOME TAX: Revenue powers.
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