Ltd company but no business or staff in Ireland

dublogic

Hi all,

I am building an online business using contractors based outside of Ireland. My client base will also be outside of Ireland so the only attraction of setting up a company in Ireland is to avail of the corporate tax & limited liability. Now they are big reasons however I just some feedback to confirm that given my circumstance going Ltd is the right way to go.

Currently I am a sole trader registered for VAT simply so I can claim VAT back on my office rent . That’s it.

All my other expenses (developers cost, server rental etc, software) are purchased from companies outside of Ireland. My income comes from outside Ireland as I work as a contractor on Elance & Odesk so I could literally grab my laptop and leave Ireland in the morning and work from anywhere in the world with good broadband. (I have no house, car etc and pay month to month apt & office rent).

However I am going to stay in Ireland because it’s my home but I do not intend to employ anybody here (I won’t go into the reason why as that will derail the thread) and I will not sell into this country but will declare taxes here.

So should I become a Ltd company solely to get the corporate tax break and limited liability? (The extra accounting costs are not an issue). I think the answer is yes however I do not take the setting up of a Ltd company lightly so would like a second opinion.

Thanks in advance

Red Sheds

I think overall you are best to take advice from an accountant on this as there are a few issues to consider. If you set up a company, and by your thread you will be its only employee, therefore you will pay PAYE and PRSI on your salary that you take from that company. If you draw out all the profits of the company as salary, then there is no benefit from a taxation point of view in having a company. However if its intended that the company will have profits left over after your salary then there could be a saving. I say could in that the application of the 12.5% rate of corporation tax is not that simple. I know for example in companies that carry out a trade mainly consisting of certain services and are classified close companies (I think) they have to pay an additional surcharge on any undistributed profits in addition to the 12.5%. This can bring their tax rate to 37.5%. As your company will be Irish resident and Irish tax resident by the looks of it, you will come under all this Irish tax legislation.

So as I said, ask an accountant or tax advisor that knows the full ins and outs, also consider are their other beneficial reasons to use a company, for example your overseas customers might prefer to deal with a legal entity rather than a sole trader.

antoinolachtnai

You certainly need to talk to accountant and/or tax advisor experienced with international tax matters. He will want to know what your longer-term plans are - to sell the company, or to build up sufficient retained profits to be able to retire on or whatever. Where you plan to live and where you are/will be tax domiciled will also be relevant.

EamonOSullivan

If you qualify, you could be able to get zero Corporation Tax for 3 years if you register a company. It is hard to tell from your post if you are a Programmer, which is specifically outside the scope of the exemption from Corporation Tax.

With the exemption, your money is still stuck inside the company. You have to pay yourself a salary at some point, and then have to pay tax. However the exemption to Corporation tax means that you can build up the company in the early days and save the outlay of Corporation Tax.

dbran

Hi

The whole of this centres around what you actually do and how much money you earn.

If the principe amount of your activity is within the scope of Section 441, carrying out a professional service, then there is no real point in setting up a limited company unless you are trying to protect your self employed status, limited liabilty or start a company pension.

If you are deemed to be a service company you will have to pay an additional 7.5% corporation tax on those profits you do not distribute as dividend. If you pay a dividend then you will be subject to income tax in the normal way and you wont get a deduction for Corporation tax. So you would be better off distributing everything as a salary. Therefore you would be no better off then your current situation but with all the red tape that goes with running a company also.

You are not entitled to the start up corporation tax exemption as it is not a new business. You were already trading as a sole trader. In any case, in 2011 it is limited to employer's PRSI and you said that you will not be taking on anyone.

Also, if you are not earning more then enough to live on, you will have to distribute all the profits as wages which again will attract income tax.

So in summary, unless you are earning more money then you need to live on, and your work is not caught by s441 then there is no point in forming a company for tax reasons unless you have a specific need to do so.

Hope this helps

dbran

srsly78

You must have an Irish resident director for a Ltd company. Also, regarding the tax exemption, being a programmer is no problem. However consultancy is excluded. So if you are doing programming on your own site that's no problem, however if you are programming for another company then you are doing consultancy and do not qualify.

EamonOSullivan

This relief from Corporation Tax does not apply to companies who are carrying on certain defined excepted trades – i.e. land dealing and petroleum and mineral activities, and to close companies (i.e. companies controlled by closely related parties) which are regarded as ‘service companies’.
In this context a ‘service company’ is taken to mean:
(a) a close company who’s business includes the carrying on of a ‘profession’
(b) a close company having or exercising an office of employment
(c) a close company who’s business consists of or includes the provision of services or facilities of whatever nature

When we enquired about what constituted a profession, we are told that the Revenue Commissioners consider the following to be ‘professions’ which consequently do not qualify for the three year exemption:
Accountants, Actors, Actuarys, Archaelogists, Architects, Auctioneers, Barristers, Computer Programmers, Dentists, Doctors, Engineers, Journalists, Management Consultants, Opticians, Private Schools, Quantity Surveyors, Solicitors, and Veterinary Surgeons.

On the other hand we understand that the Revenue do not consider the following activities to be ‘professions’ and as such would qualify, providing all other criteria are met:
Advertising agents, auctioneers of livestock in a mart, insurance brokers, operating a retail pharmacy, public relations agencies and stock broking.

These lists are not exhaustive and suitable tax advice should be taken in relation to any proposed trade or activity, however on the basis of all the information we have, Computer Programmers will not benefit from this relief.

PS sorry for the all the legalese and 'party of the first part' type language.

srsly78

Eamonn you got the wrong end of the stick there. Please give a link to the revenue website where you got that information.

From: http://www.revenue.ie/en/practitioner/tax-briefing/2011/no-012011.html

"a trade consisting of "service company" activities as defined in section 441 of the TCA 1997. Service companies include close companies whose businesses consist of the carrying on of a profession or the provision of professional services, or of exercising an office or employment. Service companies also include businesses that provide services to professionals."

The Revenue were referring to consultant computer programmers. Not companies developing their own product. A consultant is "providing services" to other companies.

I did seek tax advice on this topic, and I did not qualify because my company mainly does consultancy (selling my services as a programmer). It's kinda irrelevant anyway, because when I found out I didn't qualify for the exemption my company profits suddenly dropped to nothing and I got a big bonus :P

I had a better link on revenue.ie clearly explaining the consultancy aspect but I can't find it now

Think of it like this:
One man company, selling programming services. Main activity of company = carrying on the profession of computer programmer.
Company developing it's own website/product: Carrying on the profession of selling electronic services, or selling software. Not the same as above from the revenue point of view.

Legislation clearly has these exclusions to prevent one man bands (like yours truly) from abusing the system.

dublogic

Hi - A big thank you for all your input.

I am now in contact with an accountantant and I showed him your posts simply as a starting place for our conversation. Ultimately I think I will form a company however my conclusion (and his) is that it can wait a good while longer.

Thanks

EamonOSullivan

srsly78 following on from your reply, I may have got the wrong end of the stick. However we are both in the dark as to what the OP does for a living, so in the absence of any other information, contracting usually means programming for someone else. In all other respects I think we are in agreement.