Tax Exemption for Start Up Companies in Ireland

Background

A corporation tax exemption was previously announced in the 2009 Budget in respect of new start up companies.

The 2010 Financial Bill confirms that start up companies which commenced to trade in 2010 will be exempt from corporation tax and capital gains tax in each of the first three years. This exemption will apply to the extent that the entities tax liability for each of the three years does not exceed €40,000.

Benefits

Very broadly, new companies that have commenced to trade in 2009/2010 are exempt from corporation tax and capital gains tax until 2011/2012 provided that their tax liability in the year does not exceed €40,000. This represents the potential to shelter taxable profits of €320,000 per year or €960,000 over the three year period.

There is also a form of marginal relief where the tax liability in the year is between €40,000 and €60,000.

The relief applies to tax arising on trading profits, including capital gains tax arising on the disposal of assets used in the trade. The relief applies for three years from the date that the company commences to trade, so that it will expire in either 2011 or 2012 depending on when the company commenced trading.

When calculating the relief available the first step is to ensure the total corporation tax payable is under €40,000. It is important to note that total corporation tax includes corporation tax on investment income or close company surcharges, that is, tax that cannot be relieved under the new provisions.

Anti-avoidance Provisions

If a trade previously carried on by the owner of the business is transferred into the company, this trade will not qualify for start up company relief. Only the portion of the corporation tax relating to the new trade will qualify for the relief.

A further anti avoidance provision to consider is where a company realises that the corporation tax liability for the year will exceed €40,000 and consequently transfers a portion of the trade to another company. The result of this situation is that neither the original company carrying on the trade nor the company the trade was transferred into will qualify for the relief under Section 486C TCA 1997.

How can IFG Help?

IFG has substantial experience in the establishment and ongoing management of Irish companies, including the fulfilment of key roles of commercial and financial management.

Summary

This exemption represents a significant opportunity for start-up ventures in a well regarded EU location with the benefit of a strong network of double tax treaties.

IFG does not provide taxation or legal advice. The information and expression of opinion expressed in this briefing note are not intended to be a comprehensive study or to provide taxation or legal advice. Specific advice concerning individual situations should be taken and IFG can provide introductions to advisers who specialise in this area.