Close companies

Surcharge on undistributed income

Close companies are subject to an additional charge to Corporation Tax (CT). A surcharge at the rate of 20% is imposed on the undistributed after-tax estate and investment income of close companies. The surcharge is reduced if the company's income is distributed within 18 months of the end of the accounting period in which the income arises.

Income subject to the surcharge includes the following:

  • rental income
  • interest
  • dividend income.

A trading company is entitled to reduce the after-tax distributable estate and investment income by 7.5%.

The surcharge for an accounting period is collected as part of the CT liability of the subsequent accounting period. This must be reported on the CT1 Return.

Exclusions

An exemption applies where the excess of the distributable estate and investment income over the distributions made by the company is €2,000 or less.

A close company may make a distribution to another close company. In this case, both companies can jointly elect to disregard the distribution for the purpose of calculating the surcharge. Both companies must include this election on their CT Return for the relevant accounting period.

  • Example 1

    A close company has rental income of €60,000 and nil trading profits for an accounting period. It declares, and pays, a dividend of €31,625 in respect of the accounting period. The surcharge liability is computed as follows:

    Description

    €

    Estate and investment income

    60,000

    Less Corporation Tax @ 25%

    (15,000)

     

    45,000

    Less 7.5% trading company reduction

    (3,375)

    Distributable estate and investment income

    41,625

    Less distributions made

    (31,625)

    Excess

    10,000

    Surcharge @ 20%

    2,000

     

  • Example 2

    A close company receives Irish dividend income of €50,000 during an accounting period. The company is not a trading company. The franked investment income is exempt from CT.

    However, if the company does not distribute this income within 18 months of the accounting period end, a surcharge will apply. If no distribution is made, the surcharge due is €10,000 (equal to €50,000 x 20%).

    Alternatively, the company could pay a dividend of €30,000 within 18 months of the accounting period end. In that case, the surcharge due is €4,000 (equal to (€50,000 - €30,000) x 20%). This liability must be paid and reported on the tax return of the following accounting period.

    If the company pays a dividend between €48,000 and €50,000 within 18 months of the accounting period end, no surcharge arises. This is because the excess is €2,000 or less.

Surcharge on professional service companies

Close 'service' companies are liable to a surcharge of 15% on one half of their undistributed trading income.

An example of a service company is a close company which carries on a profession or provides professional services. A service company also includes a close company which exercises an office or employment. The principal part of the company's income, which is chargeable to tax under Case I/II of Schedule D and Schedule E, must derive from these activities.

Examples of professional activities include those of a doctor, dentist, architect, solicitor, accountant, actuary, actor, computer programmer, or engineer.

Next: Expenses for participators and associates

Published: 19 November 2025 Print this page

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