The famous 12.5% corporation tax rate is one of the biggest reasons international companies choose Ireland. But to benefit fully — and avoid costly penalties — you need to understand how the tax system works from day one. This guide explains the key taxes every Irish company must know: Corporation Tax and Value Added Tax (VAT), and how to register and comply properly.
First and Foremost: Tax Registration (Form TR2)
Right after incorporation with the Companies Registration Office (CRO), your company must register with the Irish tax authority — Revenue Commissioners.
You’ll need to complete Form TR2, which registers your business for:
- Corporation Tax
- VAT (if applicable)
- PAYE (for payroll tax if hiring employees)
TR2 can be submitted by post or online, and is a required step before trading or invoicing begins.
Corporation Tax in Ireland: Two Key Rates
First, a note on scope: Irish-resident companies are taxable on their worldwide profits and gains, while non-resident companies are taxable only on the trading profits of an Irish branch.
12.5% on Active (Trading) Income
This rate applies to profits generated from core commercial activities — known as “trading income.” Examples include:
- Selling products online or in Ireland
- Providing consultancy or IT services
- Running SaaS or software development operations
25% on Passive (Non-Trading) Income
Non-trading income is taxed at a higher rate of 25%. This includes:
- Interest income from deposits
- Rental income
- Royalties (if not related to core activity)
- Dividends (in certain cases)
Correctly distinguishing between trading and non-trading income is critical for accurate tax planning.
VAT (Value Added Tax): When Are You Required to Register?
In Ireland, VAT registration is obligatory when your turnover exceeds — or is likely to exceed — certain thresholds in any continuous 12-month period.
Current VAT Thresholds
- €42,500 – for persons supplying services only.
- €42,500 – for persons supplying goods liable at reduced or standard rates, which they have manufactured or produced from zero-rated materials.
- €85,000 – for persons supplying goods.
- €85,000 – for persons supplying both goods and services, where 90% or more of turnover is from the supply of goods.
- €10,000 – for intra-Community distance sales of goods and cross-border TBE services (telecommunications, broadcasting, electronic services) into Ireland. This applies where the supplier is established in only one EU Member State. If established in more than one, VAT registration in Ireland is required from the first sale.
- €41,000 – for acquisitions from other EU Member States.
Important: VAT thresholds apply on a rolling 12-month basis, not just by calendar year.
Adjusted Turnover for VAT
When calculating turnover for VAT registration, you may reduce turnover by the VAT already paid on stock purchased for resale. This adjusted turnover determines if you cross the threshold.
Example: A trader has €90,000 in annual turnover and €11,220 VAT incurred on stock purchases. Adjusted turnover = €90,000 – €11,220 = €78,780. Since this is below the €85,000 limit, VAT registration is not required.
Non-Resident Companies
If you are not established in Ireland, you must register and account for VAT if you:
- Supply taxable goods to taxable customers in Ireland, or
- Supply services to taxable customers in Ireland.
This rule applies regardless of turnover — VAT registration is mandatory from the first transaction.
Elective VAT Registration
Even if you don’t exceed the thresholds, you may choose to register voluntarily. This can be beneficial if:
- You want to reclaim VAT on business expenses.
- Your clients are VAT-registered businesses and expect VAT invoices.
Irish VAT Rates
Once registered, the rate you charge depends on what you supply. Irish VAT rates fall into several groups: the standard rate (23%), the reduced rate (13.5%), the second reduced rate (9%), the livestock rate (4.8%) and a flat-rate compensation percentage for unregistered farmers. Check the rate applying to your specific goods or services in Revenue’s current VAT rates database.
Note: VAT rules and thresholds are subject to change. Always verify the latest details via Revenue Ireland’s official VAT registration guidance.
PAYE: Your Obligations as an Employer
If your company hires employees in Ireland, it must operate the PAYE (Pay As You Earn) system. On behalf of Revenue, the employer deducts income tax, Pay Related Social Insurance (PRSI) and the Universal Social Charge (USC) from employees’ wages.
USC is charged on gross income before deductions and covers employment income, taxable employer benefits, share option gains and similar income. Unlike income tax, no tax credits, reliefs or exemptions can be claimed against USC. Employees themselves may be entitled to tax credits and reliefs that reduce the income tax deducted through payroll.
Dividend Withholding Tax
Irish resident companies must withhold Dividend Withholding Tax at 25% on dividend payments and other distributions they make. In the Irish system, dividends received are classified as passive income, so plan for this charge when deciding how to extract profits from your company.
Startup Tax Relief: Section 486C for New Companies
Under Section 486C of the Taxes Consolidation Act, new companies may qualify for partial or full relief from corporation tax for their first three years.
Conditions include:
- The company must be genuinely new (not a restructured or renamed business).
- The annual corporate tax liability must not exceed €40,000 to qualify for full relief.
- Relief is tied to employer PRSI contributions (i.e. companies hiring staff get more relief).
Important Exclusions
This relief is highly selective. Even if a company is new, it may be excluded if it falls into one of these categories:
- Any part of a trade previously carried on by another person.
- Companies providing professional services or carrying on a profession (the “service company” exclusion). Examples: consulting firms, financial advisory practices, some marketing agencies.
- Companies dealing in or developing land.
The scheme is primarily designed for businesses in the scalable traded sector that create jobs and contribute to exports.
Conclusion and Next Steps
Ireland’s tax system is clear, stable, and highly attractive when used correctly. Success depends on:
- Timely tax registration via TR2
- Understanding whether your income is active or passive
- Proper VAT registration (especially for non-residents)
- Realistic evaluation of startup relief eligibility
Pro tip: Always cross-reference with official sources such as:
- Revenue Ireland: Tax, VAT, and customs compliance
- CRO: Company registration and filings
- DSP: Business support grants and social welfare schemes
- LEOs: Local business grants and mentoring
- Enterprise Ireland: Scaling and export supports
- European Commission / Your Europe: EU regulations and single market rules
- Irish Banks: Business finance and accounts
Tax planning feels complex? You don’t have to navigate it alone. Our expert team offers end-to-end tax support: from registering with Revenue to preparing your annual returns and advising on tax optimisation strategies.
