Exemption For Start Up Companies

The Act states that the existing corporation tax relief for certain start-up companies, which commenced to trade in 2009 and 2010, will be extended to include companies commencing to trade in 2011. The section has affect for accounting periods beginning on or after 1 January 2011. The current relief exempts from corporation tax both trading income and capital gains on the disposal of trade-related assets by certain new or “start-up” companies in each of the first three years for which the trade is carried on. The exemption applies to the extent that a company’s corporation tax liability for that year does not exceed €40,000, with marginal relief available for companies with tax liabilities of between €40,000 and €60,000.

The relief does not extend to all trades. Trades which are subject to corporation tax at 25%, e.g. land dealing and exploration-related trades and companies carrying on certain professional services trades are excluded. The existing legislation also excludes new companies which take over pre-existing trades. The Act extends this further by ensuring that activities that would form part of a trade of an associated company cannot be commenced by new companies. There are also special rules which apply to companies engaged in the transport of passengers and goods to comply with the EU de minimis aid regulation.

However the value of the relief will now be based on the amount of employers’ PRSI paid by a company in an accounting period, subject to a maximum of €5,000 per employee and an overall limit of €40,000. If the amount of qualifying Employers PRSI paid by a company in an accounting period is lower than the reduction in the corporation tax liability, the relief will be based on the lower amount.

For more information please contact OSK Tax.