Budget 2024: How to Qualify for 12.5% Corporation Tax Rate in Ireland

by | Bookkeeping & Taxation

calculating 12.5% corporation tax in Ireland

Ireland’s 12.5% Corporation Tax rate has been a huge draw for companies looking for a low-tax European base. However, Budget 2024 have introduced changes to Corporation tax rate shattering the image of Ireland as low tax EU destination. 

From 31 December 2023, Corporation tax rate of 15% will apply to both multinational and domestic companies with a global annual turnover of €750 million and above in at least two of the preceding four years. However, the good news is that companies can still qualify for the 12.5% Corporation tax rate provided they meet certain criteria. So how do you still stay within 12.5% Corporation tax rate after Budget 2024 comes into effect?  Read to learn!

calculating corporation tax in Ireland
Source: Unsplash

What is Corporation Tax in Ireland

Don’t get confused with the word “corporation’. Corporation tax doesn’t solely refer to large corporations. It is charged on worldwide profits of companies that are tax residents of Ireland. There are a few different rates that apply to companies depending on the type of income they get.

  • 12.5% – For ‘active’ income like trading or selling goods/services
    15% – for “active” income like trading or selling goods/services for companies with a global annual turnover of €750 million and above in at least two of the preceding four years
  • 25% – For ‘passive’ income like rent or investments
  • 6.25% – For profits from patents and computer programs.

How to Qualify for 12.5% Corporation Tax

The key to securing the 12.5% rate is proving your company is a tax resident in Ireland and never reached the €750 million annual turnover during the past four years. While the annual turnover sum can be easily displayed to the Revenue, proving that your company is a tax Resident is a bit more complicated.

Irish tax law looks at where a company is truly managed and controlled. This is more than just having a registered address in Ireland. So how do you prove that your company is a tax resident in Ireland?

Important decisions about the company are made in Ireland

To qualify for the 12.5% rate, you need to show that major decisions affecting the company are made in Ireland. This includes things like business strategy and planning, budgeting and financial decisions, marketing and product development Document things like board meetings, shareholder meetings, management meetings and email discussions. 

Company’s head office is located in Ireland

To help demonstrate that Ireland is where management and control happens, your official company headquarters and registered office should be located in Ireland.

Some key pointers:

  • The registered office address on your incorporation forms should be an Irish address. This is your official legal address.
  • Your head office and principal place of business should also be based in Ireland. This is where your CEO, directors and senior management team should be located.
  • The Irish head office should be an active working location. It can’t just be a ‘brass plate’ address while everyone works remotely. There should be physical office space and facilities.
  • Company signage, stationery and branding should reflect the Irish head office address.
head office in Dublin to qualify for 12,5% corporation tax in Ireland
Source: Unsplash

Company director meets residency or tax requirements of Ireland

To help demonstrate management and control from Ireland, at least one of the company directors should be tax resident in Ireland. The usual requirement is being present in Ireland for at least 183 days in a calendar year. 

For non-resident company directors looking to set up a company in Ireland there are two options available.

You keep financial records in Ireland and have Irish employees

Having your financial and accounting records stored and managed from Ireland helps demonstrate control and oversight from your Irish headquarters. At Chern & Co we also suggest that you have at least one Irish-resident employee.

You have proof of tax residency in Ireland

Tangible proofs that operations happen in Ireland reinforce the tax residency position.

Things like rent payments, utility bills and invoices for Irish office space show physical business activity.

To Summarise – How to Qualify for 12.5% Corporation Tax Rate in Ireland

Even though an increased Corporation Tax rate introduced in 2024 evokes concerns among Irish company owners, some companies are still eligible for a 12.5% rate. The main condition is not to reach the €750 million annual turnover and prove that your company is a tax resident of Ireland.

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