On this page
If you are a consultant, contractor or professional working through your own limited company, Ireland’s 12.5% corporation tax rate is only part of the picture. A close company that earns its income mainly from professional services is a service company, and under section 441 of the Taxes Consolidation Act 1997 it pays a 15% surcharge on half of the professional income it does not pay out as dividends within 18 months. Planning distributions around that rule is one of the main tax decisions for a one-person company.
What is a close company?
A close company is, broadly, an Irish resident company controlled by five or fewer participators, or by any number of participators who are directors. Most owner-managed companies, including almost every one-person consultancy, are close companies.
What makes a company a service company?
Revenue treats a close company as a service company where the principal part of its income comes from carrying on a profession, providing professional services, or holding an office or employment. Companies that provide services to such businesses can also be caught. Typical examples include IT contractors, engineering and management consultants, medical professionals and accountants working through their own company.
How the surcharge works
- Professional or service income: a surcharge of 15% on 50% of the undistributed amount (section 441).
- Investment and rental (estate) income: a surcharge of 20% on the undistributed amount (section 440), for all close companies.
- Timing: income is treated as undistributed if it is not paid out within 18 months of the end of the accounting period in which it arose.
- Small amounts: no surcharge applies where undistributed investment and estate income is €2,000 or less.
The surcharge is calculated on distributable income after corporation tax, less any dividends paid in time. Paying enough dividends within the 18-month window removes it, but those dividends are then taxed at your marginal rate of income tax, USC and PRSI.
A simple worked example
This illustration ignores the detailed adjustments in the legislation. Suppose your consultancy company has €40,000 of distributable professional income after corporation tax for the year ended 31 December 2026, and you pay no dividend by 30 June 2028. Half of that amount is €20,000, and 15% of €20,000 gives a surcharge of €3,000. If the company paid a dividend of €40,000 by 30 June 2028, no surcharge would apply, but you would pay personal tax on the dividend instead.
How to plan for it
- Compare the cost of the surcharge with the personal tax on a dividend before deciding what to leave in the company.
- Consider company pension contributions for directors, which are deductible for corporation tax and reduce the profits available to be surcharged.
- Review salary levels through payroll each year, as salary is deductible for the company and is taxed once in your hands.
- Keep the 18-month deadline in your diary for every accounting period.
The surcharge is one reason why a limited company is not automatically cheaper than working as a sole trader. If you are deciding whether to incorporate, we can model the numbers for your income level, including the surcharge, before you commit to company formation.
Frequently asked questions
What is the close company surcharge rate on professional income in Ireland?
It is 15% of half of the undistributed professional or service income of a service company, so effectively 7.5% of the undistributed amount. Undistributed investment and rental income attracts a separate 20% surcharge.
How long does a company have to pay dividends to avoid the surcharge?
Distributions must be made within 18 months of the end of the accounting period in which the income arose. For a 31 December 2026 year end, that means by 30 June 2028.
Does the surcharge apply to trading companies?
The 15% service company surcharge applies only to close companies whose income comes mainly from professional services, a profession, or an office or employment. A company that trades in goods or non-professional services is not a service company, although the 20% surcharge on undistributed investment and rental income can apply to any close company.
Official sources
- Revenue: Surcharge on undistributed income (revenue.ie/en/companies-and-charities/corporation-tax-for-companies/close-companies/surcharge.aspx)
- Revenue Tax and Duty Manual Part 13-02-06: Surcharge on undistributed income of service companies
Talk to us
Need help with your accounts?
Get jargon-free advice from our Galway and Dublin accountants.
