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Corporation tax
The corporation tax is charged at a standard rate of 12.50% and applies to companies carrying on trading activities, except when trading in real estate. The profits of companies dealing in or developing land, whether commercial or residential, are generally taxable at 25%. However, profits from dealing in residential development land may be taxed at 20% in certain circumstances. The profits of a company which is engaged in the construction and sale of properties are taxable at 12.5%.
An Irish resident company generating rental income (either in Ireland or overseas) is taxed at 25% on such income net of certain allowable expenses.
Income tax
A non-resident company, with no branch or agency in Ireland, is liable to Income Tax at 20% on its Irish source rental income.
A tenant paying such rents to a non-resident landlord is obliged to withhold tax at the standard rate. This obligation can be avoided if the non-resident landlord appoints an Irish resident collection agent to collect the rents on their behalf. The tenant may then pay the rent to the collection agent without the deduction of income tax.
Capital gains
Profits arising on the disposal of real estate in Ireland are chargeable to Capital Gains Tax (CGT) at 20% irrespective of the residence of the vendor. It is critical to note that the 20% capital gains tax rate only applies where the disposal constitutes a capital (as opposed to a trading) transaction.
Property transfer tax
The purchase of Irish real estate is subject to stamp duty at 9% (presuming the value of the land/building is greater than €150,000). Stamp duty is charged on the VAT exclusive price.
The purchase of shares in an Irish property holding company will be subject to stamp duty at 1% of the market value of the shares acquired.
VAT
The supply of property is generally chargeable to VAT at 13.5%. VAT incurred on the purchase of property in Ireland is generally recoverable, provided the purchaser is VAT registered and their intention is to make a taxable disposal (such as the granting of a lease).
Where a landlord grants a long lease (> 10 years) VAT is chargeable based on the capitalised value of that lease (at 13.5%). In order to be in a position to charge VAT on the lease (and thus reclaim VAT on the purchase) the lease must satisfy onerous anti-avoidance legislation.
Where a short lease is granted (< 10 years) such a lease is VAT exempt. This would result in a blockage of the owner’s ability to recover VAT on the purchase price. In general, therefore a landlord waives his entitlement not to charge VAT on a short lease. In such a case VAT becomes chargeable on the recurring rentals at 21% but the lessor is entitled to recover VAT charged on the purchase.
The above is for general information purposes only. It is not intended to be comprehensive or to provide any specific tax advice.
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