Corporation Tax in Ireland: Explained for Business Owners

Introduction

According to the Revenue Department of Irish Tax and Customs, Corporation Tax (CT) in Ireland is a mandatory tax that every company operating in the State must understand clearly. 

It applies to profits, whether trading or investment income, and carries different rates depending on the activity. 

If you are a business owner in Ireland, this guide will give you precise and structured information about corporation tax, without wasting time on unnecessary details.

What is Corporation Tax in Ireland?

Corporation Tax is a charge applied to company profits in Ireland. It covers both income and capital gains. For companies resident in Ireland, the obligation extends worldwide, which means they must declare and pay corporation tax on global profits. 

For non-resident companies, the liability is more limited but still significant when they trade through an Irish branch or generate income from Irish rental properties.

The rules for calculation are broadly aligned with Income Tax rules for trading income and Capital Gains Tax rules for chargeable gains. All filings and payments are completed via the Revenue Online Service (ROS), which is mandatory under Mandatory e-filing and e-payment.

Who Pays Corporation Tax?

Corporation Tax applies to:

• Irish resident companies: They pay CT on worldwide profits (income and capital gains).
• Non-resident companies: They pay CT if:
  • Trading through a branch or agency in Ireland.
  • Receiving income or profits from Irish rental property.

This structure ensures that both local and international entities are covered where they benefit from Irish operations.

Key Differences Between Irish Corporation Tax and Personal Tax

• Corporation Tax is a company-level tax on profits.
• Income Tax applies to individuals on personal earnings.
• While both follow similar rules for calculating profits (income minus allowable expenses), corporation tax is assessed at fixed rates of 12.5% or 25%, unlike the progressive nature of personal tax.
• Companies also have additional obligations like filing CT1 returns and complying with strict accounting periods.

Corporation Tax Rates in Ireland

12.5% Rate – Trading Income

This is the most notable feature of Ireland’s tax regime. Profits from a trading activity (core business operations) are taxed at 12.5%, making Ireland one of the most attractive locations for business operations globally.

25% Rate – Non-Trading Income

Non-trading income, such as rental income, investment income, or excepted trades, is taxed at a higher 25% rate. This ensures a clear distinction between active business operations and passive earnings.

Special Cases

Some activities, such as oil and gas exploration, may have separate tax treatments under specific rules in the Taxes Consolidation Act.

Comparison with Other EU Countries

At 12.5%, Ireland’s trading rate is one of the lowest in Europe. Many EU counterparts range between 19–30%. This low rate has been a cornerstone of Ireland’s competitiveness, particularly in attracting foreign direct investment (FDI) and multinational corporations.

How is Corporation Tax Calculated?

Step 1: Taxable Profits = Revenue – Allowable Expenses

Corporation Tax is based on taxable profits for a company’s accounting period (maximum 12 months).

Step 2: Deductible Expenses

Expenses wholly and exclusively incurred for the purpose of the trade can be deducted. Examples include:

• Salaries and wages
• Rent, utilities, and office costs
• Business travel
• Professional fees (legal, accounting, consultancy)
• Depreciation via capital allowances on qualifying assets

Step 3: Non-Deductible Expenses

Some costs are excluded, including:

• Business entertainment expenses
• Items of capital expenditure not qualifying for allowances
• Fines and penalties

This clear distinction is critical when preparing accounts to avoid Revenue disputes.

Filing & Payment Deadlines

1. Corporation Tax Return (Form CT1)

All companies must file a CT1 return through ROS.

2. Filing Deadlines

The deadline is nine months after the end of the company’s accounting period, but no later than the 23rd day of that month if filing electronically.

3. Preliminary Tax Rules

Companies must pay preliminary tax for the current year before filing. This can be based on 100% of the prior year’s liability or 90% of the current year’s estimate.

4. Late Filing Penalties & Interest

Failure to comply can lead to:

• Surcharges on unpaid amounts.
• Interest charged daily on late payments.
• Restriction of reliefs such as loss relief or R&D credits.

Tax Reliefs & Incentives Available

1. R&D Tax Credit

Companies investing in qualifying Research and Development can claim a 25% tax credit in addition to normal deductions.

2. Knowledge Development Box (KDB)

Income from certain intellectual property may qualify for a reduced 6.25% effective rate, provided it meets Revenue requirements.

3. Capital Allowances

Companies can claim allowances on capital expenditure, including:

• Plant and machinery (12.5% over 8 years).
• Industrial buildings (4% over 25 years).
• Accelerated Capital Allowances (100% in year one) for energy-efficient equipment or electric vehicles.

4. Start-Up Relief

New companies may qualify for corporation tax relief for the first three years, subject to conditions.

5. Loss Relief

Trading losses can be offset against:

• Other income in the same period.
• Prior year profits.
• Carried forward indefinitely against future trading profits.

Compliance & Record-Keeping

1. Records Companies Must Keep

Companies must retain detailed books, invoices, and supporting documents for all financial transactions.

2. Minimum 6-Year Retention Rule

Records must be kept for six years from the end of the accounting period.

3. Revenue Audits & Triggers

Revenue frequently audits companies to ensure compliance. Triggers include:

• Inconsistent filings.
• High levels of expense claims.
• Late or incomplete CT1 submissions.

Corporation Tax for Foreign Companies

Residency Rules

• Companies incorporated in Ireland after 1 Jan 2015 are automatically resident unless a double tax treaty applies.
• Pre-2015 companies had transitional rules but are now deemed resident unless treaty protected.
• Foreign companies can still be resident in Ireland if central management and control is exercised here.

Permanent Establishment Concept

A branch, office, or fixed place of business in Ireland qualifies as a permanent establishment and creates a tax liability.

Transfer Pricing Requirements

Multinational groups must comply with transfer pricing rules, ensuring intercompany transactions are at arm’s length.

Double Taxation Treaties (DTTs)

Ireland has an extensive network of DTTs, allowing companies to avoid double taxation when operating internationally.

Common Mistakes Business Owners Make

• Missing CT1 filing deadlines.
• Confusing trading vs non-trading income.
• Over-claiming expenses (e.g., entertainment costs).
• Not availing of reliefs such as R&D credits or capital allowances.
• Poor record-keeping and lack of documentation.

Get Professional Help

Understanding and complying with corporation tax in Ireland is complex and requires professional guidance. At Jmaguire – Accountants And Tax Consultants, we have years of expertise helping businesses manage their tax obligations, ensure compliance, and take advantage of reliefs legally available. If you want clarity on your company’s tax position, reach out to our team today.

Conclusion

Corporation Tax in Ireland is central to running a compliant and successful business. From determining residency and applying the correct tax rates to calculating taxable profits and availing of reliefs, every step requires accuracy and awareness of current legislation. 

While Ireland’s low 12.5% trading rate remains attractive, businesses must remain alert to compliance rules and Revenue requirements. Staying informed is the best safeguard against penalties and ensures long-term efficiency.

Frequently Asked Questions

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