Tax Relief for New Start-Up Companies

New start-up companies who set up and commence a qualifying trade on or before 31 December 2026 may be able to reduce their corporation tax bill for their first 5 years of trading.

The aim of the relief is to support businesses in the early stages of growth by reducing, and in some cases fully eliminating, corporation tax payable on the profits of the new trade and certain chargeable gains, helping to improve cash flow while the business is getting established.

The relief applies where the company’s total corporation tax payable for the period does not exceed €40,000. Marginal relief is also available where the total corporation tax payable is more than €40,000 but less than €60,000.

The relief available each year is linked to the total Employer’s Pay Related Social Insurance (PRSI) the company pays for its employees and directors. This includes Employer’s PRSI up to a maximum of €5,000 per employee and Class S PRSI up to a maximum of €1,000 per director.

Any unused relief arising in the first 5 years of trading, due to losses or insufficient profits, may be carried forward for use in subsequent years.

This relief is intended for genuine trading activities and does not apply to investment or passive income.

Qualifying Conditions

1. The company must be incorporated in the State, the EU/EEA or in the United Kingdom on or after 14 October 2008.
2. The company must set up and commence a “qualifying trade” in the period beginning on 1 January 2009 and ending on 31 December 2026. The following are not qualifying trades for the purpose of this relief:
   • A trade that was carried on previously by another person (this rules out sole traders incorporating their trade into a limited company).
   • An existing trade (this rules out forming a new company and acquiring a new trade).
   • An excepted trade (i.e. dealing in or developing land, exploration and extraction of petroleum or working minerals).
   • Service company activities that come within S. 441 TCA close company provisions.
   • A trade if carried on by an associated company of the new company would form part of the existing trade carried on by the associated company.
3. The company does not exceed the specified levels of corporation tax due.

Example A:

A start-up company’s corporation tax for an accounting period is €20,000, referable entirely to income and gains from a qualifying trade. The total amount of qualifying Employer’s PRSI paid in the accounting period is €17,000.

The amount of relief available for the accounting period is €17,000, meaning the corporation tax referable to income and gains of the qualifying trade is reduced from €20,000 to €3,000.

Example B:

A start-up company’s corporation tax referable to income and gains from a qualifying trade for an accounting period is €20,000. The company also has corporation tax of €3,000 due on its investment income. The total amount of qualifying Employer’s PRSI paid in the accounting period is €25,000.

The amount of relief available for the accounting period is €20,000, meaning the corporation tax referable to income and gains of the qualifying trade is reduced to nil. The company must pay corporation tax of €3,000 on its investment income. The excess relief amount of €5,000 can be carried forward for use in future accounting periods following the five-year relevant period.

Example C:

The total corporation tax payable by a start-up company for an accounting period is €16,000. This refers entirely to income from a qualifying trade. The company has three employees and paid the following amounts of Employer’s PRSI in the accounting period:

Employee Details	Employer’s PRSI paid €
Employee 1	2,000
Employee 2	3,000
Employee 3	6,000
Total PRSI	11,000

The amount of qualifying Employer’s PRSI is capped at €5,000 per employee. Therefore, the aggregate amount of qualifying Employer’s PRSI for the period is €10,000 (i.e. €2,000 plus €3,000 plus €5,000).

The relief available is €10,000, meaning the corporation tax of €16,000 referable to income of the qualifying trade is reduced to €6,000.

Conclusion

This relief can be particularly valuable for new businesses with employees, but careful planning at the start of the business is important to ensure the relief can be accessed and fully utilised.

Should you require any assistance in this area, please contact us.