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Tax Structure

This is all about making sure you are trading or investing in the most tax efficient, risk reducing structure available, and that this structure suits your medium and long term business goals. If you are unsure about what exactly your long term business goals are, then start with, Goal No 1 having the most amount of money in your pocket when you retire / sell / transfer your business.

There are a number of different business structure in which you can trade in Ireland and it is very important you pick the correct one.

Limited Company

With a 12.5% corporation taxation rate for trading business’s, Ireland really does have an advantageous Corporation Taxation system.

The reasons for choosing Limited Liability Status are many but include

  • More tax efficient if you are running a business which makes profits over and above what you need to live on.
  • Start-ups can currently get Corporation taxation exemption
  • Risk protection if you have third party unsecured creditors
  • Debt within the business can be paid down in a far more tax efficient manner
  • Far easier to attract new Investors when you are in a corporate structure.
  • You may be able to apply for BES
  • Enhanced Cash Extraction methods, via Pensions

So whats wrong with Everyone setting up their business as a limited Company ?

  • It costs more, It costs more. ( did I repeat that )
  • You may not be able to get certain income taxation deductions as a Proprietary Directors ( > 15% ownership )
  • Losses cannot be offset against your other income in a tax efficient manner.
  • You may not be allowed to trade under Company structure, ie if you’re a Doctor.
  • Assets held within the business may be subjected to two levels of taxation in order to extract them from the business.
  • As a Director of a company you have strict Company Law requirements to meet.
  • Liquidating a Company takes time and more money.

Sole Trader

Sole Trader is a straight forward and simple way to trade as a business in Ireland. If you are living off what the business makes and you have few risks that can’t be insured against then it is a perfectly acceptable manner in which to trade.

  • It costs less than a limited Company, with far less complications.
  • Its very tax efficient when you have Losses !!! and other Income elsewhere.
  • You’ll only be subjected to one level of taxation prior to getting cash into your pocket. This is particularly useful when you have taxation allowances available that can be used against your income.

Reasons Against this

  • If you are making significant income you will have to pay significant taxation at todays crippling rates.
  • If you have debt personally then paying this down after paying crippling tax amounts becomes exceptionally difficult.
  • If you have trade creditors you are personally liable to them should your business fail.

Partnerships

I’m generally against partnerships unless they do not involve borrowings.

NO debt – Partnership a good cost effective and tax efficient manner to run a business ( mush like a sole trader for advantages )

Debt Involved – Must make sure the debt document does not make each partner jointly and severally liable for the debt outstanding otherwise you could be left with significant exposure which you initially didn’t appreciate existed.