Starting a business comes with many challenges, and financial strain during the initial phase can be daunting. Recognising this, the Irish Government introduced Section 486C of the Taxes Consolidation Act 1997, which offers corporation tax relief to certain qualifying start-ups.
This initiative is aimed at encouraging entrepreneurship and supporting new businesses during their critical first years of operation.
Let’s dig deeper into what Section 486C entails, its provisions, and how eligible businesses can benefit from this relief.
What Is Section 486C?
Section 486C provides corporation tax relief for new companies with profits under €40,000. If a qualifying business meets the outlined criteria, it can benefit from either total exemption from corporation tax or partial relief, depending on its taxable profits.
This relief applies for the first five years of trading, allowing start-ups to reinvest potential tax savings into growing their operations.
Key Features of Section 486C
- Threshold for Complete Relief
Companies with profits of €40,000 or less qualify for full exemption from corporation tax on their relevant trading income and certain capital gains.
- Partial Relief for Higher Profits
A sliding scale relief applies to companies with profits between €40,000 and €60,000. Relief is gradually reduced as profits approach the upper threshold (€60,000). No tax relief is granted for profits beyond €60,000.
- Eligibility Criteria
To qualify for relief under Section 486C, businesses must:
- Be newly incorporated and engaged in qualifying trades (specific sectors might be excluded).
- Have commenced trading after the date specified in the legislation.
- Meet the profit limits outlined above
- Structural Limitation
Relief is also capped by the amount of employers’ PRSI (Pay Related Social Insurance) contributions the company pays during the accounting period. The maximum relief is linked to €5,000 per employee and cannot exceed €40,000 annually.
- Exclusions
Companies operating in certain sectors—such as financial services, professional services, and forestry operations—are not eligible to claim relief under Section 486C.
The Purpose of Section 486C
The primary aim of Section 486C is to reduce financial barriers for new businesses, allowing them to flourish during the infancy of their operations. By lowering their tax liabilities, these businesses can allocate resources toward scaling and innovation.
This measure also supports Ireland’s broader economic strategy of promoting entrepreneurship and maintaining the country’s global competitiveness as a business-friendly jurisdiction.
An Example of How Section 486C Works
Company A establishes a trading business and generates taxable profits of €35,000 in its first year. Under Section 486C, it qualifies for full corporation tax relief on these profits, provided it complies with the other eligibility criteria.
Now, assume that in the second year, Company A’s profits rise to €50,000. It will still benefit from partial relief but not the full exemption. As profits exceed the €60,000 threshold in subsequent years, Section 486C relief ceases to apply.
How to Claim Section 486C Relief
Qualifying companies can claim this relief when filing their corporation tax returns. It’s essential to:
- Ensure trading activity falls under the scope of qualifying trades;
- Maintain accurate accounting records to demonstrate compliance with thresholds;
- Check if any other exclusions apply to the business model.
Consulting a tax advisor or accountant familiar with Irish tax law is recommended to ensure the business takes full advantage of this provision.
Key Takeaways
- Section 486C provides full corporation tax relief to start-ups with profits under €40,000.
- Partial relief applies to businesses with profits between €40,000 and €60,000.
- Relief is capped and influenced by the company’s employers’ PRSI contributions.
- The initiative is designed to stimulate entrepreneurial activity in Ireland and is applied for the first three years of trading.
Section 486C is a valuable tax relief initiative designed to support start-ups in Ireland during their critical early years. By offering full or partial relief on corporation tax, this measure helps reduce financial strain and encourages sustainable business growth.
If you’re considering establishing a business in Ireland, understanding this legislation can be a significant advantage. Ensure you assess your annual profits and sector eligibility to claim relief effectively.
