How to claim the Corporation Tax Exemption for Start Ups

Finance Act 2008 introduced a relief from Corporation Tax for new Irish companies which commenced to trade in Ireland in 2009.

This has been extended in subsequent Finance Acts to new companies which commenced trading any time between 2009 to 2014.

The relief allows an exemption from Corporation Tax for the first three years of trading provided certain conditions are met.

Full relief is available (i.e. the Corporation Tax liability is reduced to NIL) if the Corporation Tax liability does not exceed €40,000.

Marginal relief is available where the Corporation Tax liability is between €40,00 and €60,000. No relief is available where the Corporation Tax liability is over €60,000. The relief is availed of when submitting the company’s Corporation Tax return.

Changes

The relief was modified in Finance Act 2011. For accounting periods beginning on/after 1 January 2011, the value of the relief is based on the Employers PRSI paid by the company up to a maximum of €5,000 per employee and an overall maximum of €40,000. Credit is also given for any employers’ PRSI exempted under the Employer Job (PRSI) Incentive Scheme in determining the amount of corporation tax relief available to the company.

The modification was introduced to provide an incentive for new small companies to create employment. The result is that this relief is not useful to many small owner/managed limited companies where the only employees are the two directors and they do not pay Employers PRSI on their own salaries.

Qualifying Trade

The company must commence a qualifying trade in order to avail of the relief.

A qualifying trade does not include:

  • A trade which was previously carried on by another person or company. For example, a sole trade transferred to a company.
  • Dealing in or developing land.
  • Exploration and extraction of natural resources.
  • Professional services as per Section 441 of the Taxes Consolidation Act 1997.

EU Regulation on State Aid

EU regulation on State aid specifically excludes the following activities from the relief:

  • Fishery and aquaculture sectors
  • Primary production of agricultural products
  • Coal sector

EU regulation has established a de minimis celling for State aid to a single recipient, below which it is deemed there is a negligible impact on trade and competition within the EU. Any amounts paid above this de minimis ceiling must be notified to the EU Commission. A company availing of Corporation Tax relief should be aware that the amount of Corporation Tax relief received during the 3-year period is taken into account when calculating whether the company exceeded the de minimis ceiling.

In order to comply with EU regulation on de minimis aid, the Revenue Commissioners may disclose information on the tax relief claimed by companies to Government Departments and Agencies paying other de minimis aid and, if requested, to the EU Commission.

Update 26 June 2013

It is now possible to carry forward any unused relief against future tax years.

Previously, where a loss was made or the tax payable was less than the maximum relief, it was not possible to carry forward the relief. However, for accounting periods ending on or after 1 January 2013 this may be allowed provided certain conditions are met.

If you have any queries of a general nature, please feel free to leave a comment below.

Image courtesy of Jacob Botter

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