How To Qualify For 12.5% Corporation Tax In Ireland

There are several steps a company can take to qualify for 12.5% Corporation Tax in Ireland. While some of the requirements are common, some are not. Each business is different. Generally, companies must prove that they carry out at least a portion of their primary activities and control from Ireland. Documentary evidence is also helpful. Written records of meetings, receipts, and hotel booking confirmations are essential.

This is not intended as a comprehensive tax consultation for Ireland’s businesses but just a brief so if you need help with tax planning in Ireland or any other accounting and tax-related assistance, please don’t hesitate to get in touch.

Section 486C tax relief for start-up businesses

For start-up companies, tax relief can come in the form of a deduction from the employer’s PRSI. The exemption applies if a qualifying trade takes place in an accounting period that is part of the start-up company’s start-up period. However, a qualifying trade must have begun before the start-up company began paying the employer’s PRSI. In order to receive the benefit, the business must have commenced trade before 1 January 2018.

Section 486C tax relief for start-up companies provides a significant reduction in corporation tax liabilities for the first three or five years of trading. The relief is capped at the amount of employer PRSI contributions. Nonetheless, the relief is a valuable incentive for start-up companies and can be a good opportunity for new businesses to establish themselves in Ireland. But be sure to know the limitations.

Among the restrictions on the use of loss and credit carry-forwards are Section 382 and Section 383. Both were enacted in the mid-1980s to curb what is called “loss trafficking,” or using an acquired company’s tax losses to offset unrelated income. Section 382 concerns net operating losses, and Section 383 addresses tax credits. The limitations of this relief can virtually eliminate the use of these credits or losses once the start-up company has been acquired by another company.

The Finance Act 2018 amended the qualifying trade date for startup companies. It now applies until 31 December 2021, allowing more time to create a successful business. Startup companies must not have excessive corporation tax liabilities. Additionally, the qualifying trade activities must be carried out by an associated company. In this way, the activities of the associated company would be regarded as part of the trade of the start-up company.

Companies can take advantage of Section 486C tax relief by claiming the research and development tax credit. This credit is especially applicable for startup companies, which often incur substantial losses in their early years while developing new techniques, products and methodologies. They also must conserve their operating capital and cash flow. However, until recently, startups were not eligible for the research and development tax credit. This tax break may be a blessing for these new companies.

Ireland has a skilled workforce and access to the EU. It also has low corporate tax rates, making it a desirable location for companies to start up. The corporate tax rate is 12.5% and the country is the last English-speaking member of the EU. Ireland is also a tax haven, with Section 486C tax relief for start-up businesses reducing the corporation tax bill in the first three years of trading.

Value added tax (VAT)

In the 1990s, the Irish government convinced multinationals like Apple and Microsoft to set up manufacturing facilities in the country. Intel soon followed. The government raised its tax rate to 12.5% to comply with EU state aid rules. Afterwards, multinational jobs mushroomed in Ireland. The 12.5% tax rate was vigorously defended by the Irish government, particularly after it was increased to 25% as part of the country’s international bailout in 2010. But many analysts still expect the Irish government to remain competitive in the global battle for foreign direct investment. In fact, today, one out of six workers is employed by a multinational firm.

The corporation tax rate in Ireland is 12.5% for companies incorporated in Ireland. This tax rate is based on profits that companies make during a 12-month accounting period. Companies can claim foreign tax credits for foreign tax paid in Ireland. If you have income from another country, the tax credit is only for the amount you pay in Ireland. If you’re unsure about whether you qualify for the 12.5% tax rate, seek advice from an accountant or tax specialist.

Irish businessmen are often confused by Ireland’s low corporate tax rate. While many multinational companies opt to incorporate in Ireland, they must also pay a substantial share of employment tax. That is why Irish companies have to pay less than US multinationals. While the Irish tax rate is relatively low, the Irish government is very generous in defining what it taxes. In the United States, multinational firms usually aim to make profits that are tax-free globally.

VAT is another indirect tax that is applied to corporate taxpayers. There are several indirect taxes, some of them 0%. One of the most common is VAT. The VAT rate for goods and services is 23% in Ireland. Some services are VAT-exempt. If you don’t pay this tax, your customers will. The tax is collected from the ultimate customer. A business can also pay customs duties if it imports goods from outside the European Union.

If you are a multinational company, the rate of 12.5% in Ireland could increase. If multinational companies have profits in Ireland, they may need to pay more taxes elsewhere. The European Commission, however, gave Ireland assurances to not seek higher rates in their member states. The Irish government was able to retain this low rate as a way to attract foreign investment. In the meantime, the Irish government can look to the future.

Another way to benefit from the Irish corporation tax is to establish a group of companies in which both the claimant and surrendering company are residents. These companies can be resident in the same EU state or in a country with a double tax agreement. In addition, there is a tax benefit called stamp duty. Stamp duty is a tax on certain written documents and instruments. It is also applicable in the case of bona fide share exchanges.

R&D tax credit scheme

The R&D tax credit scheme in Ireland is designed to reduce your current year corporation tax liability by up to 25%. Any excess credit may be carried back to a previous year to generate a tax refund. A qualifying expenditure may include fully loaded wages and salaries, subcontractors, direct and overhead costs, and capital expenditures. The credit is refundable and you may even get a cash benefit if your company is not profitable at the time.

In addition to the statutory 12.5% corporation tax rate, the R&D tax credit scheme in Ireland can attract highly skilled employees. Moreover, it can lower your effective income tax rate to as low as 23% if your employees are engaged in R&D activities. A company can avail of this incentive only if it possesses an IP and a patent that is patented in the country.

While the R&D tax credit scheme in Ireland is available to national and international businesses, it is largely significant for multinational companies. Companies can account for their R&D expenses over the line in their profit and loss accounts, and the credit can make a significant impact on the unit cost of R&D – a key measure for multinational companies when considering where to locate. The Revenue Commissioners have also outlined what activities qualify as R&D.

In addition to lowering the company’s tax bill, R&D tax credit schemes can lead to cash refunds. Companies can use their R&D tax credits to offset future tax liabilities. However, the number of refunds a company can claim will be limited to the amount of payroll and corporation tax payable during the relevant R&D period. In other words, R&D tax credits can help your company grow and become more profitable.

Although SMEs believe the R&D tax credit scheme is a significant staff burden, it is actually very straightforward. As long as a company has not started trading and has completed the qualifying expenditure, it can benefit from the R&D tax credit scheme. If a company has qualified for this credit scheme, it must have invested at least 25% in R&D. The R&D tax credit scheme is available to companies of any size and type.

If a company spends EUR50k in R&D, it can claim a 25% tax credit for these expenditures. This relief applies for up to three years after the company commences trading. It is worth remembering that the R&D tax credit can be applied to any expenditures related to R&D. However, if the company does not receive any benefit from the R&D tax credit, it will owe the full amount of profit.

Furthermore, companies can avail of a range of benefits from the Irish taxation system. For example, foreign taxes on royalties received by Irish Holdcos from their EU/EEA subsidiaries will receive additional tax credits for the amounts they have paid in foreign taxes. However, these benefits only apply to the nominal tax rate in Ireland. So, it is advisable to check the details of your company’s R&D investment in Ireland before committing to it.


This article is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this article, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.

Table of Contents

About Us

Ireland Accountant is a Chartered Accounting firm in Ireland providing company formation, tax and accounting services.

Follow Us