Think about how many founders approach their first profitable years: reinvesting everything back into product development, hiring, or growth. The business is profitable on paper, but there’s no cash being drawn out. Then the tax bill arrives, and it’s based on those profits sitting in the company.
The realisation hits: tax is due regardless of whether the money was taken out.
Here’s the fundamental difference: corporation tax levels work differently than income tax. Your company pays tax on profit, whether you take that money out or not. And the rate you pay depends on what type of income you’re generating.
Most Irish founders know about the famous 12.5% rate. It’s one of the reasons Ireland is such an attractive place to build a business. But there’s a second rate, 25%, that catches people off guard. And new global minimum tax rules are adding another layer of complexity, even if they don’t affect most SMEs.
Let me walk you through exactly how the Ireland corporate tax rate works, when each rate applies, and how to plan strategically.
What Is Corporation Tax? A Quick Refresher
Corporation tax is a tax on the profits of limited companies and certain other entities. It’s completely separate from income tax, which sole traders and partnerships pay on their personal earnings.
Here’s the key distinction that confuses people: not all company income is taxed the same way.
Trading Income comes from your core business activities. If you’re selling products online, delivering marketing services to clients, or charging subscriptions for your software, that’s trading income.
Non-Trading Income is passive income that doesn’t come from your main business operations. Rental income from property your company owns, interest from cash deposits, dividends from investments, these all fall into the non-trading category.
Why does this matter? Because Ireland applies different corporation tax levels to each type of income. Get this wrong and you could be paying double the tax rate you expected.
Current Corporation Tax Rates In Ireland (2026 Update)
Let me break down the three rates you need to know about:
12.5% for Trading Income
This is the rate that applies to most active businesses. If you’re running an e-commerce brand, marketing agency, or SaaS startup generating revenue from your core operations, you’ll pay 12.5% on your trading profits.
This rate is why Ireland remains one of the most competitive locations in Europe for growing businesses. Compare it to the UK’s 25% company tax rate or France’s rates above 25%, and you can see the advantage.
25% for Non-Trading Income
Passive income gets taxed at 25%. This includes:
- Rental income from property
- Interest on deposits and loans
- Income from investments
- Certain foreign dividends
If your company is holding cash and earning interest, or if you’ve bought property through your company and are renting it out, you’ll pay 25% on those profits.
15% Global Minimum Tax (OECD Pillar 2)
You’ve probably heard about this in the news. The OECD Pillar 2 rules introduce a 15% global minimum tax for large multinational groups.
Here’s what matters for Irish SMEs: this only applies to groups with consolidated revenue above €750 million. If you’re running a startup or SME, you’re completely unaffected by these rules.
The 12.5% rate remains highly competitive and relevant for the vast majority of Irish businesses.
How Corporation Tax Levels Affect Startups And Scaling SMEs
Understanding corporation tax levels directly impacts how much money you have available to grow your business.
Retained Profit and Reinvestment
Lower tax rates mean more profit stays in your company to reinvest. Let’s say your business makes €100,000 profit:
At 12.5% corporation tax:
- Tax bill: €12,500
- Available to reinvest: €87,500
At 25% (if it were all non-trading):
- Tax bill: €25,000
- Available to reinvest: €75,000
That €12,500 difference could fund a new hire, increased ad spend, or product development. Over multiple years, it compounds significantly.
R&D Credits and Startup Incentives
Irish startups can access additional reliefs that reduce effective tax rates even further:
- R&D tax credits for qualifying development work
- Employment and Investment Incentive (EII) for investors
- Key Employee Engagement Programme (KEEP) for share options
- Start-Up Relief for Entrepreneurs (SURE) for first-time founders
These incentives stack on top of the already-competitive 12.5% rate. For tech companies doing genuine R&D, your effective tax rate can drop close to single digits in early years.
Salary vs Dividends vs Retained Earnings
Here’s where tax planning gets strategic. As a founder, you have three ways to extract money from your company:
Salary: Taxed as income at your personal rates (up to 52% including USC and PRSI). But it’s deductible for the company, reducing corporation tax.
Dividends: Taxed at your personal income tax rate (up to 40%) plus USC and PRSI, so the effective top rate can reach about 52%. A 25% Dividend Withholding Tax (DWT) is usually deducted at source and credited against your final liability. Remember, the company has already paid 12.5% corporation tax on the profit before it’s distributed, so there’s a second layer of tax when you take money out as dividends.
Retained Earnings: Leave profit in the company at 12.5% tax. No additional personal tax until you draw it out later.
The optimal mix depends on your personal income needs, the company’s cash requirements, and your long-term plans. Most founders benefit from taking a modest salary and leaving profits in the company during growth phases.
Common Misconceptions Around Corporation Tax Levels
Let me clear up the myths I hear constantly.
“I’m Too Small for This to Matter”
Wrong. Even small businesses benefit from understanding and optimising their tax structure. If you’re making €50,000 profit, the difference between 12.5% and higher personal tax rates is significant.
The misconception comes from thinking tax planning is only for large companies. Actually, it matters most when you’re small and every euro counts.
“I’ll Save More Staying as a Sole Trader”
This depends entirely on your profit level. Here’s the comparison:
Sole Trader earning €80,000 profit:
- Income tax, USC, PRSI: approximately €36,000-€40,000
- Net after tax: €40,000-€44,000
Limited Company with €80,000 profit:
- Corporation tax at 12.5%: €10,000
- Remaining €70,000 available for salary/dividends
- Smart planning can reduce overall tax significantly
For higher earners, incorporation almost always wins. The 12.5% Ireland corporate tax rate is hard to beat with personal tax rates.
These examples are simplified and for illustration only. Actual tax outcomes depend on your personal circumstances.
“Ireland’s 12.5% Tax Rate Applies No Matter What I Do”
Not quite. The 12.5% rate only applies to trading income. If you’re generating significant non-trading income, you’ll pay 25% on that portion.
And if you’re part of a large multinational group above €750 million revenue, the 15% global minimum tax might apply. But again, that’s not relevant for most SMEs and startups.
When The 25% Rate Applies (And How To Avoid It)
Understanding what triggers the higher rate helps you structure your business properly.
What’s Considered Non-Trading Income
Revenue categorises these as non-trading:
- Rental income from property owned by the company
- Interest income from cash deposits or loans
- Investment income and certain dividends
- Income from licensing intellectual property in some cases
- Intercompany lending between related entities
The last one catches founders off guard. If you’ve set up a holding company structure with intercompany loans, the interest might be taxed at 25%.
Compliance Tips to Stay in the 12.5% Bracket
Keep your core business activities clearly separated from passive investments. If you’re accumulating significant cash in the company, be aware that interest income gets taxed at 25%.
Document intercompany transactions clearly if you have a group structure. Revenue will look closely at these arrangements to ensure they’re genuine commercial transactions, not just tax planning.
For complex structures involving multiple entities or international operations, get professional advice. The line between trading and non-trading income can get blurry.
Sole Trader vs Limited Company: A Strategic Comparison
Let me show you the numbers because this is where the corporation tax level advantage becomes clear.
Tax Rates Comparison
Sole Trader:
- First €40,000: effective rate around 25-28%
- Next €20,000: effective rate around 48-52%
- Above €60,000: effective rate around 48-52%
Limited Company:
- Trading profits: 12.5% corporation tax
- Then personal tax when you draw salary or dividends
When to Incorporate for Tax Advantage
The break-even point is typically around €60,000-€80,000 profit annually. Below that, the admin costs and complexity of running a limited company might outweigh the tax savings.
Above €80,000, incorporation usually makes sense from a tax perspective, especially if you plan to reinvest profits rather than draw everything out as personal income.
Example Calculations
Scenario 1: €80,000 Profit
Sole Trader:
- Income tax and charges: approximately €38,000
- Net after tax: €42,000
Limited Company:
- Corporation tax: €10,000
- Remaining: €70,000 available
- Take €30,000 salary: personal tax approximately €3,500
- Leave €40,000 in company for growth
- Total tax: €13,500
- Cash available personally: €26,500
- Cash available in business: €40,000
Scenario 2: €200,000 Profit
Sole Trader:
- Income tax and charges: approximately €96,000
- Net after tax: €104,000
Limited Company:
- Corporation tax: €25,000
- Remaining: €175,000 available
- Strategic mix of salary and dividends
- Potential overall tax: €55,000-€65,000 depending on structure
- Savings: €30,000-€40,000 annually
These are simplified examples. Your actual position depends on personal circumstances, but the pattern is clear: higher profits benefit more from the lower company tax rate.
How Global Tax Changes Could Affect Irish SMEs In 2026-2027
You’ve probably seen headlines about international tax reforms. Let me cut through the noise.
Pillar 2 and Minimum Tax Rules
The OECD’s Pillar 2 introduces a 15% global minimum tax. This is designed to stop large multinationals from shifting profits to low-tax jurisdictions.
The threshold is €750 million in consolidated revenue. If your group is below that, these rules don’t apply to you.
The 12.5% Ireland corporate tax rate remains fully available and competitive for SMEs and startups.
Watchouts for E-Commerce, SaaS, and International Structures
If you’re selling internationally, especially through platforms like Amazon or Shopify, you need to think about:
- Where you’re creating taxable presence
- Transfer pricing if you have entities in multiple countries
- VAT and sales tax obligations separate from corporation tax
- How cross-border transactions are characterised
SaaS companies with customers globally face similar considerations. Ireland’s double taxation treaties with over 70 countries provide good protection against being taxed twice on the same income.
Strategic Planning Tips For Managing Corporation Tax Levels
Smart founders don’t just react to tax bills. They plan ahead.
Tax Forecasting for Scaling Businesses
Use your accounting software to model future profits and tax liabilities. Xero, QuickBooks, Sage, and Surf Accounts all support this.
Build quarterly forecasts that show:
- Projected profit for the year
- Estimated corporation tax due
- Cash required to pay the bill
- Impact of different salary/dividend strategies
Syft Analytics makes this easier by connecting to your accounting platform and providing visual dashboards. You can see your tax exposure updating in real-time as the year progresses.
Salary/Dividend Planning
Here’s how to think about the optimal mix:
Take Salary for:
- Qualifying for mortgages and credit
- Building PRSI contributions for state benefits
- Reducing company profit and corporation tax
Take Dividends for:
- Drawing profits after basic salary needs are met
- Lower compliance burden than payroll
- Flexibility in timing
Leave in Company as Retained Earnings for:
- Funding growth without personal tax
- Building balance sheet strength
- Deferring personal tax to future years
Most founders benefit from a salary around €40,000-€50,000 with strategic dividend planning for anything above that.
Using Tech and Dashboards for Real-Time Insights
Automated dashboards help you monitor tax exposure throughout the year. We set up clients with:
- Monthly profit tracking against budget
- Corporation tax accrual calculators
- Cash flow forecasts including tax payments
- Alerts when profit trends suggest higher-than-expected tax bills
This eliminates surprises. You know your approximate tax position at any point.
Is Your Business Structured For Tax Efficiency?
Here are five signs you’ve outgrown your current structure:
1. Rapid Growth: Your profit has doubled in the past year and you’re expecting similar growth ahead.
2. Increasing Profits: You’re consistently making over €80,000 profit and paying high personal tax rates as a sole trader.
3. International Expansion: You’re selling into multiple countries or considering setting up overseas entities.
4. Complex Ownership: You’ve brought in co-founders, investors, or are planning to issue share options to staff.
5. Significant Retained Earnings: You’re accumulating cash in the company rather than drawing everything out personally.
When to Review Your Setup
Review your tax structure annually. But also review after major business changes, significant profit increases or decreases, changes in personal circumstances, or when approaching any relevant thresholds.
How Around Finance Helps SMEs Get Clarity
We provide tailored advisory for Irish e-commerce, agency, and SaaS businesses. Our tax services include business structure reviews, tax planning that balances personal and company needs, implementation of Xero and analytics tools, and ongoing advisory as your business scales.
Contact us for a free structure review. We’ll look at your current setup, identify opportunities for improvement, and give you clear recommendations.
FAQs
What is the current corporation tax rate in Ireland?
The standard Ireland corporate tax rate for trading income is 12.5%. Non-trading income (rental, investment, interest) is taxed at 25%. These are the rates that apply to most Irish SMEs and startups. The 15% global minimum tax only applies to large multinational groups with revenue above €750 million.
Does the 12.5% tax rate apply to all businesses in Ireland?
No. The 12.5% rate applies specifically to trading income from active business operations. If your company generates passive income like rental or investment returns, that portion is taxed at 25%. The nature of your income determines which corporation tax levels apply.
What’s the difference between the 12.5% and 25% corporation tax rates?
The 12.5% rate applies to active trading income—revenue from selling products, delivering services, or running your core business. The 25% rate applies to passive non-trading income like property rental, interest on deposits, investment returns, and certain intercompany transactions.
Should I switch from sole trader to limited company for tax reasons?
If you’re consistently earning over €60,000-€80,000 profit annually, incorporation usually offers tax advantages. The 12.5% company tax rate on profits left in the business is significantly lower than personal income tax rates of 48-52% at higher bands. Beyond pure tax savings, incorporation also provides liability protection and better access to funding.
How can I reduce my company’s effective tax rate legally?
Several strategies can reduce your overall tax burden: Access R&D tax credits if you’re doing qualifying development work. Use employment incentives and startup reliefs available from Revenue. Plan your salary and dividend mix strategically to balance personal and corporate tax. Ensure you’re correctly categorising income as trading rather than non-trading where appropriate. The key is proactive planning, not reactive compliance.
