In the absence of other considerations, Irish companies are subject to tax at 12.5% on their profits. Individuals are subject to tax at a marginal highest rate of 41% and may also be subject to PRSI (the equivalent of national insurance contributions) (4% for traders) together with the universal social charge at varying rates up to 8 percent, on the profits of their business conducted personally.
In the case of a company, the tax will arise for the individual at the point of distribution of dividends or payment of salary, income or directors fees to the individual.
PAYE must be operated by the company on payments of salary and directors fees and accounted formonthly (and in real-time after 2019). This applies to directors as well as employees who are employed in Ireland.
Distributions (dividends) dividends to a non-Irish shareholder resident in a tax treaty country (including the UK ) or in the EU are generally paid free of tax and withholding tax from an Irish corporation tax perspective. They would of course constitute income of the shareholder in accordance with his own personal tax liability in his state of residence, such as the UK..
This point in time at which dividends or other distributions are paid can be deferred for quite some considerable time in almost all cases. Monies may be left the company which may accumulate subject only to corporation tax and be reinvested.
Restrictions on Retention
There are restrictions on the accumulation of profits in the case of most service and passive investment companies. They are broadly similar to those applicable in the UK. Personal service companies are subject to a surcharge unless the income is distributed within 18 months of the end of the relevant accounting period..
This is an extra corporation tax charge that applies unless the monies are paid out. There are means of managing the charge. This may effectively compel payment of a distribution dividend in the case of a personal service company or investment company which has an income tax impact on the recipient.
A service in this context refers to a company undertaking a personal service as such. This is narrowly defined and does not apply to the majority of companies which provide services. The legislation is aimed at preventing personal service providers channelling their income through a company. It is not relevant to the vast majority of businesses.