Due to the global financial crisis legislation has been introduced to help stimulate economic growth. The Taxes Consolidation Act has been introduced (Section 486C) to promote and encourage new business activity in the traded sector of the Irish economy.
The rationale for the policy stems from the recognition of the seriousness of current economic conditions and the availability of liquidity, and so is designed to assist start-up companies to manage their cash flow.
New start-up companies which commence to trade in 2010 will be exempt from both corporation tax on trading income and on capital gains on the disposal of trade related assets in the first three years in which the trade is carried on. Corporation tax on trading profits in the South of Ireland is currently charged at 12.5%.
The tax exemption applies to companies where the corporation tax does not exceed €40,000 per year and marginal relief applies where corporation tax payable is between €40,000 and €60,000.
The relief will not apply to trades dealing in development land, working materials and petroleum activities, trades previously carried on by another person and to which the company has succeeded or companies carrying on certain professional service trades.
You can take advantage of the 3 Year Exemption if:
- You are a new company (incorporated in Ireland or another EEA State) since 14th October 2008
- You are a company which has started a qualifying trade in 2009 or 2010
- You are a company whose corporation tax liabilities do not exceed certain levels
In order to avail of the corporation & capital tax exemption you must carry out a qualifying trade. A qualifying trade does not include:
- A trade previously carried on by another person. The trade must be a new business and not the transfer of an existing business or part of a business from a sole trader or previous company
- An excepted trade (subject to 25% tax). Profits from non-trading activities such as rental and investment income are taxed at 25% and do not qualify for the relief
- A trade carried on entirely outside Ireland and whose profits are subsequently taxed at 25%. An Irish incorporated company must be managed and controlled in Ireland and have “substance” in Ireland in order to qualify for the 12.5% corporation tax rate and in turn the exemption as outlined in this article
- A trade dealing in or developing land or exploration and extraction of natural resources
- A trade of a “service company” that would be subject to a professional companies profits surcharge. Effectively, the “service companies” that do not qualify for this tax relief include close companies (5 or fewer shareholders/ directors) whose businesses consist of the carrying on of a profession or the provision of professional services, or of exercising an office or employment. These “service companies” also include businesses that provide services to professionals
- A trade in the fishery or aquaculture sectors
- A trade active in the primary production of agricultural products
- A trade active in the coal sector
This is a fantastic opportunity for anyone who’s been thinking of or planning to start a company in the south of Ireland, particularly following recent indications from Stormont’s finance minister that any future cut to the corporation tax rate in Northern Ireland will have to wait for at least four years.