Tax relief for Start up Companies

May 23, 2012

Relief from Corporation Tax for new start-up companies for the first 3 years of trading was introduced in 2008. A qualifying new company who commenced to trade in 2009or 2010 with a Corporation Tax liability not exceeding €40,000 may have its Corporation Tax liability reduced to nil for those years in respect of profits attributable to the qualifying trade and to the disposal of assets used for the purposes of the new trade. In 2011, the relief was modified for all qualifying companies and extended to qualifying companies commencing to trade at any time up to 31 December 2014.

The relief may be available for new companies:

• that incorporated on or after 14 October 2008,
• which commenced a qualifying trade in 2009, 2010, 2011 or 2012, and
• whose Corporation Tax liability, in respect of profits of a new trade and chargeable gains on the disposal of assets used in the trade, for a 12 month accounting period does not exceed €40,000, with marginal relief available where total Corporation Tax payable is between €40,000 and €60,000.
  • For the tax years 2011 to 2014, the legislation dealing with this relief was modified so that the value of the relief will be linked to the amount of Employer’s PRSI paid by a company for an accountnig period, subject to a maximum of €5,000 per employee and an overall limit of €40,000.
  • In brief where the total Corporation Tax payable by a qualifying new start-up company for an accounting period does not exceed €40,000, the aggregate amount of Corporation Tax referable to income and gains will be reduced to nil where the total specified contributions of Employer’s PRSI equals to exceeds the total tax due. This is only the case where the Corporation Tax liability for the year is under €40,000 but exceeds the total qualifying Employer’s PRSI, the excess Corporation Tax is due for payment.
  • Where the total Corporation Tax payable is between €40,000 and €60,000, the aggregate amount of Corporation Tax referable to income and gains will be reduced to an amount as calculated in accordance with the marginal relief formula. However, the amount of tax due is the  lesser of the tax calculated under marginal relief or the amount of tax due under marginal relief reduced by the amount of qualifying Employer’s PRSI.
  • These changes apply to all qualifying companies for accounting periods beginning on or after 1 January 2011. companies which set up and commenced a qualifying trade in 2009 or 2010 will be able to obtain relief on the basis of the old rules for profits and gains earned in accounting periods commencing before 2011. For any profits and gains earned in accountnig periods commencing in 2011 or later, the modified relief will apply.
• The company must also come within the scope of the EU de minimis aid Regulation and in this regard it cannot have received more than €200,000 in State aid from all sources in any 3 year period. This amount is reduced to €100,000 for the road transport sector.

It is important to note that a qualifying trade does not include:

• a trade which was previously carried on by another person or formed part of another person’s trade or the trade must not be capable of forming part of the trade of an associated company,
• a trade of dealing in or developing land or exploration and extraction of natural resources, or
• a trade consisting of “service company” activities. Service companies include close companies whose businesses consist of the carrying on of a profession or the provision of professional services, or of exercising an office of employment.

If you have any queries in regard to this relief or if you would like any additional information, please do not hesitate to contact Colm Browne or Mairead McNamara in the Tax Department.

OBI cannot accept any responsibility for loss or damage arising to any person as a result of acting or refraining from acting as a result of information contained in this article. Professional advice should always be sought before acting upon any matter in this article.