Corporation Tax Rates
The standard rate of corporation tax in Ireland has been reduced from 50% to its current rate of 12.5%.
Higher Tax Rate on Certain Income
The Finance Act also introduced a 25% rate of corporation tax on certain income of companies with effect from 1 January 2000. The income in question is income chargeable under Case III (e.g. discounts, foreign income, interest on Government Securities, deposit interest not subject to D.I.R.T.), Case IV (royalties, miscellaneous income, deposit income subject to D.I.R.T.) and Case V (rental income from land and buildings in the State). The 25% rate will also apply to income from working minerals, petroleum activities and dealing in or developing land, other than construction operations.
10% Rate Of Tax
In addition to the introduction of the 12.5% rate, provisions for the phasing out of the 10% rate of corporation tax, as agreed with the European Commission were enacted.
The provisions are as follows: In the case of manufacturing operations which were approved for grant assistance by an industrial development agency on or before 31 July 1998, or other manufacturing trades which were being carried on before 23 July 1998, the 10% rate will apply until 31 December 2010.
Manufacturing trades commencing on or after 23 July 1998, obtained the 10% rate until 31 December 2002.
In the case of the IFSC, certified operations which were approved on or before 31 July 1998 will retain the 10% rate until 31 December 2005. Certified operations approved after 31 July 1998 will obtain the 10% rate until 31 December 2002.
In the case of the Shannon Airport Zone, certified operations which were approved on or before 31 May 1998 will retain the 10% rate until 31 December 2005. Certified operations approved after 31 May 1998 will obtain the 10% rate until 31 December 2002.
When the 10% rate expires, such income will be taxable at the 12.5% rate.
Directors Bonus and Tax Deductible Expenditure As the corporate tax rate will fall progressively from its current level of 28% to a level of 12.5% by 1 December 2003, it was more tax efficient to pay Directors bonuses in 1999/2000 rather than in future years. This was because it is highly unlikely that the Personal Income Tax rates will fall as dramatically. As set out below, the overall tax cost of taking a bonus when the Corporation Tax saved is offset against the Income Tax Liability is currently 18% and will increase to 27.5% in 2003.
| 1999/2000 | 2003 |
Income Tax Rate | 46% | 40% |
Corporation Tax Rate | 28% | 12.5% |
Overall Tax Cost of Bonus | 18% | 27.5% |
Equally, the concept of incurring expenditure as early as possible to maximize the tax saving can be applied to other tax-deductible items such as Directors Pension contributions, or capital allowances. Where expenditure is discretionary it should be incurred sooner rather than later to maximize tax deductibility
Corporation Tax
Reduced Rate (on first €254,000)
- from 1/1/2001 to 31/12/2001 | 12.5% |
Reduced Rate (on first €127,000)
- from 1/1/99 to 31/12/2000 | 12.5% |
Reduced Rate (on first €63,500)
- from 1/1/98 to 31/12/98 | 25% |
Reduced Rate (on first €63,500)
- to 31/12/97 | 28% The reduced rate has
merged with the standard
rate of 12.5% |
Manufacturing Rate | 10% |
Group loss relief is extended to branches of companies resident outside Ireland where the group parent company is resident in the EU.
Interest & Royalties
Payments such as interest and royalties can be made without deduction of tax within such a group resident in the EU.
Interest in the course of a trade or business
Interest in the course of a trade or business can now be paid without deduction of withholding tax to a company resident in the EU or a tax treaty country.
Non-trading Income - 25% Tax
From the year 2000, non-trading income will be taxed at 25%. This will include deposit interest, interest on government securities, royalties, rental income, profits from dealing in and developing land (but not construction), profits from the exploitation of oil, gas and mineral resources.
Capital Allowances for Business Cars
This threshold has been increased to €22,000 for new and second hand cars. Wear and tear will be granted on a straight line basis over 8 years at a rate of 12.5% per annum.
Business Expansion Scheme
This has been renewed until the end of 2005 subject to a review about future needs. The seed capital scheme has also been extended for a similar length of time.
