Are you a new entrepreneur in Ireland? Well, then taxes are eating your heads up. In Ireland, you need to pay in between 20% – 40% tax on your passive income. You must keep thinking about ‘I have to pay that much!
What will I do? How will I do?’ That’s such a mess up, right?
Well, what if there is an entrepreneur’s tax relief in Ireland that can greatly reduce your tax tension? Yes, you heard it right. You can use some tax relief to reduce your headache.
But how does it work?
Let’s explore those facts.
What Is Entrepreneur’s Tax Relief In Ireland?
Ireland’s Entrepreneur’s Tax Relief is a great way for business owners to save big when selling their company. Instead of paying the standard 33% Capital Gains Tax (CGT). You only pay 10% on gains up to €1 million. That’s a massive tax break! However, this relief doesn’t apply to investment businesses or passive income assets.
What Are The Eligibility Criteria For This Relief?
Sounds interesting, right? But wait! Every entrepreneur can’t use this privilege. To use tax relief, you gotta meet some requirements. For example,
- You must have held at least 5% of the shares in a trading company (or a holding company of a trading group).
- You must have owned those shares for at least three years within the last five years before selling.
- You must have worked as a director or employee in the business for at least three years, spending at least 50% of your time in a managerial or technical role
Is There A Limit On The Amount Of Tax Relief Available?
Yes, there is a lifetime limit on Entrepreneur’s Tax Relief in Ireland. The relief applies to capital gains up to €1 million over your lifetime.
Any qualifying gains up to €1 million will be taxed at the reduced 10% rate. However, if your total gains exceed this threshold, the excess will be taxed at the standard 33% Capital Gains Tax (CGT) rate.
However, there are a few limits and conditions to keep in mind.
- Full relief applies if the corporation tax due is €40,000 or less, while partial relief is available for amounts up to €60,000.
- The relief is linked to the employer’s PRSI contributions, with a cap of €5,000 per employee or €40,000 per year overall.
- Not all businesses qualify—companies taxed at the 25% corporation tax rate, and professional service firms (like law and accounting firms) aren’t eligible.
If you’ve already used part of this relief in previous sales, only the remaining portion of the €1 million cap will be eligible for the 10% rate.
How Much Tax Relief Can Irish Entrepreneurs Claim?
Irish entrepreneurs can claim Entrepreneur’s Tax Relief on gains up to €1 million over their lifetime. This means instead of paying the standard 33% Capital Gains Tax (CGT), they only pay 10% on qualifying gains.
For example,
If you sell your business and make a gain of €800,000, you’d pay just €80,000 in CGT instead of €264,000 under the normal rate—saving €184,000! However, if your total gains exceed €1 million, any amount above that is taxed at the usual 33% rate.
It’s a solid tax break, but careful planning is key since it’s a lifetime limit. A tax advisor can help you make the most of it!
How Do Entrepreneurs Qualify For Tax Relief In Ireland?
Tax relief is a golden moon for any start up owner. So what should I do to take this chance? You must be thinking that, right? Well, it is not rocket science. You just need to meet some requirements.
1. Ownership Requirement
You must have owned at least 5% of the shares in a trading company or a holding company of a trading group. This ensures that the relief is only available to those with a significant stake in the business.
2. Holding Period
You must have held your shares for at least 3 years within the last 5 years before selling them. This rule prevents short-term investors from taking advantage of the relief—it’s designed for those actively involved in building a business.
3. Active Involvement
It’s not enough to own shares—you must also have worked in the business. To qualify, you must have been a director or an employee. And spend at least 50% of your working time in a managerial or technical role for at least three years. This proves that you’ve played a real part in running the company.
4. Qualifying Business
Not all businesses are eligible for this relief. Your company must actively trade, producing goods or services rather than simply holding investments. Businesses focused on investment income, development land, or passive income do not qualify.
These limits help ensure the relief supports businesses that actively create jobs and contribute to the economy.
5. Business Type Restrictions
Some businesses can’t have tax relief, including:
❌ Companies subject to the 25% corporation tax rate (such as investment companies).
❌ Professional service companies, including legal, accounting, and consultancy firms.
Wrap Up
If you meet all these criteria, you can benefit from the 10% Capital Gains Tax (CGT) rate instead of 33%, potentially saving a lot when selling your business. Since tax rules can be complex, consulting a tax advisor can help ensure you qualify and maximize your savings!
