Corporation Tax Basis of Charge
What is Corporation Tax charged on?
All profits (income and gains), wherever arising, of the companies.
Rates of Corporation Tax:
- 12.5%: Trading income (see Guidance on Revenue opinions on classification of activities as trading (PDF, 60KB) and Determination of Classification as Trading Activity list)
- 25%: Non-trading income [includes income chargeable under Case III (e.g. discounts, interest, foreign income), Case IV (patent royalties, miscellaneous income) & Case V (rental income from land & buildings in the State) of Schedule D]. Also included at this rate is income from activities which consist of working minerals, petroleum activities & dealing in or developing land, other than construction operations.
Basis of Assessment
- Corporation Tax is assessed on the profits of a company's accounting period at the relevant Corporation Tax rate in force during the accounting period.
- Where the rate of Corporation Tax changes during an accounting period, the profits of that period are apportioned on a time basis and taxed at the appropriate rate for the purpose.
An accounting period for tax purposes is a period of not more than twelve months and is normally the period for which the company makes up its annual accounts.
Company capital gains
- Capital gains, other than gains from development land, are included in a company's profits for Corporation Tax purposes and are charged to tax under a formula that means in effect that tax is paid at the prevailing capital gains tax rate. As a result of changes introduced in Finance Act 2012 the rate of capital gains is increased from 25% to 30% in respect of disposals made on or after 7th December 2011 so the formula will now mean that tax is paid at this rate.
- Gains by companies from disposals of development land are chargeable to capital gains tax and are not included in profits chargeable to Corporation Tax.
- A company resident in the state is liable to Corporation Tax on its worldwide profits, not just its Irish source profits. Whether or not these profits are brought into Ireland is irrelevant for this purpose.
- The term 'residence' was not, until recently, defined in law. The general rule was that companies, whose 'central management and control' was exercised in the State, were treated as resident here. This rule or test emerged as a result of judicial decisions set down in case law. Factors to be taken into account in establishing where the company's central management and control lie include, for example, where the important questions of company policy are determined, where the majority of directors reside, where the negotiation of major contracts is undertaken and where the company's head office is located.
- The changes introduced in Finance Act 1999 provided that, in general, companies incorporated in the State are resident in the State. There are, however, a number of exceptions to this rule. An Irish incorporated company is not treated as Irish resident for tax purposes if it is a 'relevant company' (see below) and either carries on a trade in the State or is related to a company that carries on a trade in the State ['the trading exemption']. Furthermore, an Irish incorporated company that is regarded as not resident in the State by virtue of a tax treaty is treated as not being resident in the State ['treaty exemption'].
A Relevant Company is a company that either:
- is ultimately controlled by persons resident in the EU or in a country with which Ireland has concluded a double taxation treaty or
- is, or is related to a company the principal class of the shares of which is substantially and regularly traded on one, or more than one, recognized stock exchange in an EU Member State or in a tax treaty country.
It is important to note that the changes introduced in Finance Act 1999 did not amend or repeal the existing residency rules laid down in case law. Accordingly, a company whose central management and control is exercised in Ireland (whether it is incorporated in Ireland or not) is still regarded as resident in Ireland for tax purposes.
Cessation of residency
- A company that ceases to be resident in the State is treated as having disposed of all of its assets at their market value when it so ceases.
- This means that any capital gains that arise as a result of this disposal are charged to tax.
- Assets which continue to be used in Ireland by a branch or agency of the company or where the company is ultimately controlled by residents of a tax treaty partner country are not subject to this provision.