Corporate Tax Planning: 6 Things Irish Business Owners Should Be Doing Now
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Benjamin Franklin once said, “In this world, nothing can be said to be certain, except death and taxes.”
Managing your business finances effectively involves a critical component: corporate tax planning.
For Irish business owners, keeping up to date with the latest tax regulations and implementing proactive strategies is not only advisable but can also result in substantial savings.
Here are six things Irish business owners should be doing now regarding corporate tax planning.
Understand recent tax changes
Tax regulations are always changing and evolving. Irish entrepreneurs must remain up-to-date on any modifications to tax laws that could affect their companies.
Any changes can impact your tax planning tactics. Staying informed on changes in tax legislation allows you to take advantage of new opportunities, credits, or incentives.
PRSA Changes
Changes in PRSA regulations can significantly impact retirement planning strategies and the associated tax benefits.
For example, since the PRSAs’ regulations were recently modified in January 2023, PRSAs have gained greater attractiveness to business owners. They can finance their retirement using a PRSA, which makes it a tax-efficient way to save this money.
Contact one of our financial advisors to discover how you can benefit from pension and retirement savings opportunities.
Optimise Your Business Structure
The structure of your business has a significant impact on your tax liability.
Consideration should be given to whether operating as a sole trader, partnership, or limited company is the most tax-efficient option for your circumstances.
For example, for regular trading companies in Ireland, the obligation is to pay corporation tax at a rate of 12.5% on their tax-adjusted profits.
This means the company’s taxable income is modified to comply with the relevant tax rules.
On the other hand, sole traders face a different taxation scenario.
The tax rate for sole traders is contingent upon their circumstances and personal tax rate band.
This can result in income tax rates of either 20% or 40%, offering a more personalised approach that takes into account the unique financial situation of each sole trader.
Consult with one of our financial advisors to assess your current structure and explore potential alternatives that align with your business goals.
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Plan for estate and succession strategies
Estate and succession planning is vital for long-term business sustainability.
Irish business owners should carefully plan for the transfer of their business, whether within the family or to a third party.
An estate plan makes sure your assets go where you want them to after you pass away.
In the absence of a solid plan, the distribution of your assets may be decided by a court, which can be expensive, time-consuming, and may not reflect your wishes.
A succession plan is necessary to guarantee a seamless transfer of the company’s operations to the designated successors or the following generation.
This contributes to the business’s continuity and value preservation.
Strategic estate planning is essential for minimising the impact of estate taxes on your assets, using tools like trusts and gifting strategies.
Business succession planning also involves considering tax implications when transferring business ownership, with careful planning helping to minimise capital gains and other associated taxes.
Learn more about how you can protect your family and business by having an estate and succession plan in place by reading our article.
Leverage tax credits and incentives
Tax credits and incentives are available to foster business growth and advancement.
Using these credits can greatly reduce how much tax you have to pay, giving you a chance to make your finances work better and be more efficient.
Entrepreneur Relief
Entrepreneur Relief, also known as Business Relief, is a tax benefit for business owners selling eligible business assets in Ireland.
To qualify, ownership of the assets for at least three years is necessary, and the assets must have been used for a qualifying business.
Retirement Relief
Retirement Relief is a tax benefit applicable to the sale of business or farming assets, and despite its name, it does not necessitate actual retirement.
It’s important to note that each person, including both spouses in a family business, can individually benefit from this relief.
If you are 55 or older, you may be eligible for Retirement Relief, providing a reduction in Capital Gains Tax (CGT) when selling business or farming assets.
For those under 55, qualification is possible if you are unable to continue due to health reasons (supported by medical evidence) or if you reach the age of 55 within 12 months of the asset disposal.
Agricultural Relief
If you inherit or receive a gift of agricultural property, you could be eligible for Agricultural Relief, which lowers the taxable value of the property, including land, by 90%.
However, specific conditions apply to this relief.
In cases where the agricultural property doesn’t meet the criteria for Agricultural Relief, it might still be eligible for Entrepreneur/Business Relief.
Favourite Nephew/Niece Relief
Favourite Nephew/Niece Relief in Ireland is a tax relief that allows individuals to pass on certain assets to a favoured nephew or niece at a reduced rate of Capital Acquisitions Tax (CAT).
This relief applies when the nephew or niece has worked substantially on a full-time basis in the business or farm owned by the deceased, allowing them to be treated similarly to a child for CAT purposes.
The relief can significantly reduce the tax burden on the transfer, making it easier for the next generation to inherit family businesses or farms.
Employment Investment Incentive
The Employment and Investment Incentive Scheme (EII Scheme) is a tax relief program enabling qualifying investors to receive relief against their total income for income tax purposes when investing in specific Qualifying Companies.
This scheme offers up to 40% tax relief on investments, with an annual limit of €250k for a minimum four-year holding period.
For longer investment horizons, an annual investment of up to €500k is possible, subject to a minimum seven-year holding period and specific conditions.
This scheme covers various income types, including rental income and ARF distribution income.
Learn more about tax-efficient wealth extraction by reading our article, A Guide for Business Owners on Protecting, Extracting, and Growing Wealth in Ireland.
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Create a retirement strategy
Developing a comprehensive retirement plan involves several key steps to ensure financial security and a smooth transition from active business engagement to retirement.
Optimising your pension contributions is essential for constructing a retirement-worthy wealth portfolio, with the added benefit of valuable tax advantages.
Read our Retirement Planning Guide for more insights.
Or explore strategies for each stage of life by clicking on the images below.
Transfer company profits into your pension
Opting for conventional profit extraction methods, such as dividends or personal asset purchases, exposes business owners to higher tax burdens, ranging from 30% to 40%, Capital Gains Tax, Capital Acquisitions Tax, and immediate tax liability for directors.
In contrast, transferring profits into your pension plan offers various advantages, including no Benefit in Kind for the employer, immediate tax deductions, corporation tax relief, and exemptions from employer PRSI, Capital Gains Tax, and Corporation Tax.
Additionally, pensions grow tax-free, and a 25% tax-free lump sum is available at retirement, with the option to access the pension from the age of 50.
Your company has the unique opportunity to make unlimited tax-free contributions to your PRSA (Personal Retirement Savings Account) up to €2 million, but only until the end of 2024.
From 1st January 2025 (expected), these contributions will be limited by your salary. This makes 2024 your last chance to take full advantage and maximize your pension contributions under the current rules.
Example:
Before the Changes (Until 31st December 2024):
Sarah owns a business and earns €60,000 a year. Her company has €200,000 in profits available to invest. Right now, the company can contribute the full €200,000 to Sarah’s PRSA tax-free. This means Sarah’s pension grows significantly, and the company gets full tax relief on the contribution without any restrictions tied to her salary.
After the Changes (From 1st January 2025):
From 2025, Sarah’s company will only be able to contribute an amount based on her salary. The contribution cap is linked to her €60,000 salary, any amount over 100% of salary will be taxable as BIK (Benefit in Kind) to Sarah.
Why This Matters:
By acting now, Sarah’s company can take advantage of the unlimited contribution rules and invest up to €2 million tax-free into her pension before the changes come into effect. After the deadline, this opportunity disappears, and contributions will be limited.
Talk to our financial advisors at True Wealth for more information on how to extract wealth from your company.
Alternatively, you can read our article, A Guide for Business Owners on Protecting, Extracting, and Growing Wealth in Ireland.
Get a Tax Efficient Planning Quote
Seek professional guidance
For a comprehensive and informed approach to tax-efficient planning, we strongly encourage you to seek the expertise of our financial advisors at True Wealth.
Our dedicated professionals possess the knowledge and experience to guide you through the intricacies of tax planning, ensuring that your strategies align with your specific goals and maximise tax efficiency.
By engaging in a conversation with our advisors, you gain valuable insights into optimising your financial decisions, managing risks, and navigating the complexities of tax regulations.
We at True Wealth are experts in personal and business financial planning, retirement and pension planning, pension tracing, savings and investments, protection, mortgages, and wealth management.
Take the proactive step towards securing your financial future by consulting with our team, who are committed to providing tailored advice and empowering you with the information needed to make informed financial choices.
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All our content has been written or overseen by a qualified financial advisor. However, you should always seek individual financial advice for your unique circumstances.
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