Avoiding close company surcharge

lightspeed

Hi

My understanding is that if I set up an Irish registered company that makes its income from an Irish rental property, the income will be subject to 25% corporation tax.

Then I would pay personal income tax on any dividend issued from the remaining 75% of this income. If I don't issue a dividend within 18 months, the company has to pay 20% close company surcharge.

However the definition of a close company is if it is an Irish registered company. What if I was an Irish resident director of a company registered in another country such as Dubai for example?

Am I correct in thinking no close company surcharge would be incurred?

So rental income would only be taxed at 25% and could use the profits as capital for future investments?

I would only incur income tax in Ireland if I choose to pay myself a dividend from this Dubai registered company.

SureYWouldntYa

I don't know the Dubai tax rules but you're likely going to have a tough time actually getting the company tax resident within Dubai, it's not going to be as simple as you think. If it was everyone would be doing it and nobody would end up paying the surcharge.

There is usually little sense in paying a dividend since it's not deductible for corporation tax, you'll want to either provide for salary to leave no surchargeable profits or eat the surcharge to keep money within the company for future investment.

namenotavailablE

There's also the following to consider when determining the tax residency of a foreign incorporated company:

Rules for companies that are not incorporated in Ireland

The central management and control rule applies to foreign incorporated companies. If a company is incorporated in a foreign country and is centrally managed and controlled in Ireland, it is resident in Ireland for tax purposes.

Source: https://www.revenue.ie/en/companies-and-charities/corporation-tax-for-companies/corporation-tax/company-residency-rules.aspx

Jim2007

https://www.boards.ie/discussion/2058376749/avoiding-close-company-surcharge

If it was that simple everyone would be doing it and there would be no need for expensive tax advisors and lawyers. But the reality is that the revenue services around the world are not stupid and they have closed down almost every loop hole and continue to do so as new ones are discovered.

Initial costs to do something like this properly would be 50K - 100K. The scheme might be good for as little as 12 months to say 3 years and then you need a new scheme to avoid paying taxes on the old scheme and push it out some more, then repeat. So you'd want to very serious income to make it worth while.

DmanDmythDledge

Unless you're going to be making a lot of rental income in the future you might be better off owning the investment property personally. Holding an investment property in a company could result in double tax when/if you want to liquidate your investment - company pays CGT when it sells the property and then you pay tax either receiving a dividend from the proceeds or liquidating the company to extract the cash.