The Current Corporate Tax Rates
Ireland has a low corporate tax rate of 12.5% on trading income, which is referred to as the ‘trading rate’. This makes Ireland an attractive location for multinational companies to base their operations. The ‘passive rate’ of 25% applies to non-trading income like dividends, interest, rents, and royalties. Capital gains are taxed at 33%.
Tax Deductions
Ireland allows several deductions to lower taxable income:
- Capital Allowances: Tax depreciation allowances on assets like plant, machinery (12.5%), some industrial buildings (4%), motor vehicles (12.5%) and IP assets.
- Interest Expenses: Interest expenses are deductible if used to finance trading activities.
- Donations: Donations to approved charities, schools, churches, and other approved organizations over €250 per year.
- Pensions: Contributions to approved pension schemes.
- Losses: Trading losses can be offset against income in the current or preceding year. Excess losses can be carried forward indefinitely against future trading income.
R&D Tax Credits
Ireland offers a generous R&D tax credit equal to 25% of qualifying R&D expenditure, in addition to the standard 12.5% deduction. This encourages innovation and attracts research-focused companies.
Transfer Pricing
Ireland’s transfer pricing rules require transactions between related parties to be priced as if they were between unrelated parties. This is based on the OECD arm’s length principle. Companies must maintain transfer pricing documentation to support intra-group charges.
Tax Implications of Business Structures
The choice of legal structure (company, partnership, sole trader) has tax implications in Ireland. Companies provide limited liability but are subject to corporation tax. Partnerships allow pass-through taxation, but partners have unlimited liability. Sole traders have unlimited liability and are taxed at personal tax rates.
Summary
- Ireland has a low corporate tax rate of 12.5% on trading income, making it an attractive location for businesses.
- Generous R&D tax credits of up to 25% are available in addition to the 12.5% deduction, encouraging innovation.
- Capital allowances allow tax depreciation on assets like plant, machinery, industrial buildings, motor vehicles and IP assets.
- Interest expenses are deductible if used for financing trading activities
- Donations to approved charities and pensions are deductible expenses.
- Losses can be offset against income in the current or preceding year and carried forward indefinitely.
- Transfer pricing rules apply to transactions between related parties.
