Setting up a company in Ireland

There are a few options when looking to set up a company in Ireland. This post looks at the pros and cons, tax optimisations, costs and administration efforts of each.

I’m open to correction on any of the below but this is what I have found so far.

Options

These are the options I will be looking at.

• Employee under umbrella company
• Director under umbrella company
• Director of a private limited company
• Sole trader
• Offshore company

All options (possibly with the exception of the offshore company) have the ability to claim business expenses which must have been incurred “wholly and exclusively” for the purposes of running the business to be allowable for tax purposes. This means that the costs must be incurred while actually performing the business or trying to attract more business.

As a daily rate contractor working on-site at a company these are limited enough to things like

• 50% of your mobile
• 100% of your internet
• a portion of your rent, electricity and gas if you have a dedicated room as an office. The portion of those bills will be the percentage the office takes up in your home.
• if you own your home you can only claim a portion of electricity and gas. Not your mortgage.
• any office equipment you purchase for the company
• training/courses in relation to work
• accounting fees

If you are operating another type of business then you can claim more things like mileage, subsistence while travelling and so on.

Employee under umbrella

You would only use this option really if you were going on a daily rate contract with a company, you didn’t want to set up a company, and you didn’t want to lose your PRSI class A status. These are typically used for shorter-term contracts.

The main difference to a director under an umbrella is that you pay a higher PRSI rate but maintain full coverage for any short-term payments including illness and disability. You also do not need to file an income tax return each year.

You need to run this through a company who has this structure setup. Basically warehouse-style accounting companies or individual accounting firms will have an umbrella company set up as a private limited company. You simply get added to the company as an employee or a director depending on the option you choose.

You also get public liability and professional indemnity insurance included in your monthly fee. Most big companies that you would get contracts with will require a certain level of cover as part of your contract terms so be sure you have these in place with the company you are paying.

Some also offer a wellbeing program.

Cost

The lowest rate I could find for this option was 85€/month before tax credits are applied. This is 34€ less per month or 408€ less per year than the director option.

You will pay about 8.8% more in PRSI payments as you need to pay both the employee (4%) and employer portion (8.8%).

The PRSI calculations are slightly more complicated than this but for demonstration purposes, this is a rough estimate.

If you are earning 400€/day working 220 days per year you will pay 7,744€ more per year to maintain your class A status. When you take the cheaper account maintenance into account this is a net effect of 7,336€ more than the director route.

A cheaper alternative to keeping your short term PRSI cover would be to go the director route and take out an income protection policy to guarantee a percentage of your income should you no longer be able to work for any reason.

A good website I found for this is www.lion.ie. The guy is an independent broker and I find his writing funny which always helps with topics like illness cover.

Admin

The admin for this is simple, you keep track of your hours, submit them to the accounting firm and they submit an invoice on your behalf to the company(ies) you are working for.

There are a few forms to fill out on startup but set-up and close down are quick and easy in comparison to a private limited company.

Director under umbrella

This is similar to the employee under an umbrella in that it’s quick to set up and close down when needed.

You also get public liability and professional indemnity insurance included in your monthly fee.

Some also offer a wellbeing program.

Cost

There is one company that allows you to only pay for the months you invoice. Others charge monthly regardless if you have worked so judge based on your needs.

The cheapest I found is 119€/month before tax credits are applied.

You will be paying more for the service than an employee under an umbrella but 8.8% less in PRSI contributions.

So for the same example as above, if you are earning 400€/day at 220 days then you pay 7,336€ less overall (408€ more for the service but 7,744€ less as you are not maintaining your class A PRSI status).

You will also be under PRSI class S which means you no longer have cover for any short-term payments including illness and disability.

You still have cover for things like:

• Maternity Benefit
• Adoptive Benefit
• Paternity Benefit
• Parent’s Benefit
• Widow’s, Widower’s or Surviving Civil Partner’s (Contributory) Pension
• State Pension (Contributory)
• Treatment Benefit Scheme
• Invalidity Pension
• Jobseeker’s Benefit (Self-Employed)
• Guardian’s Payment (Contributory)

As above, if you aren’t comfortable with the lower PRSI cover for short term things, you could take out an income protection policy to cover this risk for much cheaper.

Admin

As with the employee umbrella option, the admin for this is simple. You keep track of your hours, submit them to the accounting firm and they submit an invoice on your behalf to the company(ies) you are working for.

You also need to file a tax return each year you are a director. This is usually included in your monthly fee. If you have more complex matters like rental income, investment income etc they may charge a bit more.

Private Limited Company

This one is quite a bit more admin heavy but has many more options in terms of tax and financial planning.

It is more costly to set up and close down as well as to maintain. It also takes longer.

The main benefits are that you have many more options in terms of company and investment growth, tax optimisations, personal branding for your company and so on.

This option also protects your personal assets from potential creditors should the company get into trouble at any point.

So if you bought a machine, took out a loan which you then defaulted on, then those creditors could only come after your business assets.

That said I believe that if someone sues you for indemnity related issues or public liability and you do not have insurance to cover it then your personal assets could still be at risk.

If you go through a period of no work (like maternity leave) then you still need to pay the monthly fee as the accountants still need to file nil returns. Some firms offer a slightly reduced fee if you will be dormant for 6 months or more.

You could file the nil returns yourself easily enough but this was not something I wanted to bother with while taking care of my first newborn so bore the cost of closing down.

Cost

Depending on who you go with some may include your setup costs in their monthly fee. Others typically charge 250+VAT to 400+VAT for setup.

Running costs are more expensive than umbrella setups and typically go for 149€+VAT to 195€+VAT/month.

Closing costs can go from 600-1,100€ inc VAT.

Some firms include your professional indemnity and public liability in their monthly fee but if not this would be an additional cost. Possibly another 500€-1,000€/year depending on the cover you require.

These are tax-deductible from your business costs at least.

You also need a business bank account. This can cost money but AIB used to have a free business banking option for 1 person private limited companies. You can get in touch to see if that’s still on offer.

Admin

Administration is heavy enough even with a firm taking care of things for you. You still need to review their work.

In my experience, I have found many mistakes in some of the workings I received. Including a difference of 2,000€ net take home that I would have lost out on if I had not asked for clarifications and suggested filing things a different way! It pays to be somewhat familiar with the workings and to take the time to review them on a regular basis.

As with the umbrella options, every month you need to submit your timesheet for invoice preparation.

The accountants will process your payroll, prepare your P35s, P30s and submit your VAT returns. They also take care of your annual financial statements and accounts.

As I mentioned above, you will need to be familiar enough with these things as you ultimately have to sign off on them as accurate.

Do it yourself options

If you have control issues and spend a lot of time reviewing the work of your accountants (cough, cough, points to self), then you may want to take a stab at doing your own accounts while paying an accountant to review and advise on a once off basis.

This could reduce your fees and possibly your time if it’s quicker to do it yourself than it is to review and go over and back to get things cleared up.

There are some software options that could help you out.

You would need to do your own payroll using software like Sage. This is paid software but might be cheaper for 1 person companies, I’m not sure.

You could also get your accountant to show you how to do your first VAT return. Once you’ve done one you can do them all.

Revenue online has some guides on how to file your self-assessed tax return or there is a software you can buy that will help you do this including if you are jointly assessed. Check out the options here.

Payless tax is also working on software for preparing financial statements and other required filings for small companies here.

Tax and Investment Options

So why would anyone want all that hassle?

There are a lot more financial growth options and tax incentives through a company.

You can avail of things like:

• Investing in an executive pension
• Investing in real estate through a small self-administered pension
• Investing in real estate through the company
• Investing in the stock market through the company
• Capital gains entrepreneur relief
• The SURE scheme (start-up refunds for entrepreneurs)
• Dividends

Executive pension

The company needs to be operating for a certain amount of time but eventually, you can start up a pension through a company.

This needs to be managed by trustees. I am not familiar with the fee structure of these. You would need to speak with a pension specialist for owner-managed companies in terms of getting all the details for this.

You are limited to the funds provided by the pension provider.

The benefits of an executive pension are that you can invest much higher amounts per year than with a regular occupational pension.

However, only a certain portion is tax-deductible so you’d need to weigh the option of investing higher amounts which grow tax-free until withdrawal vs the cost of not getting a tax break on the initial sums which you would then need to pay tax on again on withdrawal. I can be wrong on this so please correct me if I am.

This limit is based on how much you take out of the company so if you aren’t taking a salary (as you are living off your partner’s salary), then your contribution limits may not be very high.

You can also withdraw from an executive pension as early as age 50.

One of my issues with pensions is the withdrawal age. As I plan on retiring by 45, it would complicate my withdrawal strategy to try and bridge the gap to accessing my pension.

As my husband is 4 years older, I do have the option to make him a director or employee of the company and contribute to a pension in his name. This would allow us to gain access to the money sooner should we wish to go down that route.

Again there are conditions to this which need to be worked through with a specialist.

Small self-administered pension (SSAP)

Similar benefits apply to this type of pension.

I believe the earliest withdrawal age for this is 60.

As it says in the title you have control over what the fund is invested in but also needs to be managed by trustees which I’m not aware of the fee structure for.

The other benefit is you can invest in a property through an SSAP. There are many conditions that go with this. A good article on this can be found here.

Not worth it in my opinion but I’m not everyone 🙂

Investing in real estate through the company

If you take a minimal salary out of the company, any money left in the company can be used to invest in real estate.

This needs to be considered carefully and planned with a tax specialist.

Any rental income you receive will be charged at 25%.

If you leave that rental income in the company it will be subject to a closed company surcharge of an additional 15%. Effectively making your tax rate 40%.

I’m not sure how it works if you take the rental income out of the company. If you are not charged anything further then it is a savings compared to investing outside of a company as long as your gross combined income is higher than 100,000€ (which is a net income tax rate of about 25%).

If you invest in real estate outside a company structure your rental income is charged at your marginal income tax rate + USC and PRSI. So if you are in the higher tax bracket it may seem like 40% is less than the 52% of the higher tax band. But as we’ve seen in this post, you don’t get charged 52% on your full income.

You would need to be earning a gross combined income of 220,000€ in order to actually be paying 40% on your total income (once tax credits and bands are taken into account). Any less than that and you’d be better investing outside a company structure in terms of taxation on rental income.

The property must be an investment only. It can not be for personal use such as a holiday home.

Any investments are locked in the company and are not personal so can get messy if you want to get back into your name. If you wanted to wind down the company or take the property out of the company, you would pay your marginal tax rate on the full value of the property at the time of removal so think carefully about how you want to manage that.

I’m not sure how selling works within the company structure in terms of tax on gains.

Investing in stocks through a company

Similar to the real estate option, any money left in the company after salary withdrawal can be invested in the stock market.

You can open an online brokerage account like Degiro and invest through the company. That said, I just found out that Degiro no longer offer company accounts. Interactive brokers might be another option but I’ll update this post if I find an account that offers brokerage to company’s.

Any money left in the company is charged corporation tax of 12.5%. You also get charged a professional services charge for certain professions of 15% on 50% of the undistributed funds. This translates to a net tax rate of 19%.

You would need to be earning a gross income of 75,000€ in order for your net tax rate to be more than that.

BUT you are also charged 33% capital gains on any funds when you take them out of the company. I believe this is just applied to the initial capital and not the full amount after investment growth.

For example, you leave 100,000€ in the company but that grows to 150,000€ with ETFs which you pay an exit tax on, I believe you only pay the 33% on the initial 100,000€.

When you take this into account it results in a net tax rate of 46% on the money you have left in the company (12.5% corporate tax + 15% of 50% undistributed funds + 33% capital gains on withdrawal).

You would need to be earning a gross combined income of 300,000€/year in order to pay a 46% net tax rate so you would be better withdrawing the money at your lower rate and investing outside the company in that case HOWEVER there is another option for capital gains entrepreneur relief which tips the scales. More on that below.

Dividends from your stock investments

In terms of dividends invested through a company, they are charged at 25%.

If you take the dividends out you are then charged your marginal income tax rate on those on top of the 25%.

This means you would need to be earning a combined income of less than 65,000€ (with a net rate of 16%) in order to get a “better deal” than the 41% exit tax on EU ETFs outside a company structure.

If you leave them in the company you are charged the closed company surcharge of an additional 15% bringing the rate to 40%. A savings of 1% compared to the 41% exit tax on dividends outside a company structure.

Gains from your stock investments

Gains are charged the same way they would be outside a company. So 33% on individual stocks and 41% on EU/Irish ETFs.

EU/Irish ETFs are also still subject to the 8 year deemed disposal when invested through a company structure.

Capital gains entrepreneur relief

There is a scheme where you only pay 10% capital gains under certain conditions which you can read about here.

In this case, the net tax rate of money left in a company for investment is 27% (12.5% corporate tax + 15% of 50% undistributed funds + 10% capital gains on withdrawal).

This means that if you are earning a combined gross income of 105,000€, you qualify for the relief and are jointly assessed then investing through a company can result in a tax savings.

One of the stipulations is that the money needs to be left in the company for a minimum time frame (I think 3 years) before you can withdraw nuder this scheme. So you would need to be ok without within that timeframe.

If you can leave as much money invested in the company and live off your partner’s income then this approach can shave off years to early retirement.

In our workings, it shaved 1.5 years off our time to FI compared to withdrawing the money and investing outside a company structure. It could likely shave off more if we looked at other scenarios where we live fully off my husband’s income.

0% capital gains

There is another option to withdraw tax-free if you should liquidate the company and move to a country where no CGT applies to this type of income. I believe Portugal and Switzerland are examples at the moment.

This option would need to be managed very particularly and you would need to work with a specialist well in advance of this taking place to make sure all your boxes are ticked.

The SURE scheme

The Start Up Refunds for Entrepreneurs (SURE) is a tax refund scheme that allows eligible people to get a refund of up to 41% of the capital they invest in starting a business. Under the SURE scheme, you may be entitled to a refund of PAYE income tax that you paid over the 6 years before the year in which you invest. You can read the Revenue guide IT15 for further details of the SURE scheme. You can use the online calculator on sure.gov.ie to estimate your potential refund.

Dividends

You can leave money in your company to be taken as dividends instead of salary but I haven’t figured out why anyone would want to do that.

According to the accountant I consulted, they said that salary and dividends are taxed the same way but that dividends are not tax-deductible as a business expense where salary would be. So I’m not sure what the benefit would be. If anyone can enlighten me please do.

Sole trader

If you are just getting started and aren’t sure of the level of income you will bring in from your company you may want to start out as a sole trader. You can convert from a sole trader to limited company at a later stage but not the other way around.

This is a much simpler setup than a limited company but if your business fails, your personal assets could be used to pay your creditors.

Though as mentioned above even with a limited company, if someone sues you for slander or negligence I believe they can still go after your personal assets. Either way, it is important to have adequate public liability and professional indemnity insurance in place for either business type.

The steps of setup are simple:

1. Register for Income Tax with ROS online. Complete the form and you will get your ROS access number in the post in a few days. You use this to apply for ROS online.
2. Register for VAT (if applicable). VAT is applicable if you plan to sell goods over 75,000€ in one year or provide services worth over 37,500€ in any one year. If you are just getting started and don’t think you will exceed that then you can start without registering but as soon as you think you might exceed it you must register. I must check but if you do exceed it then you may need to pay VAT for the full year even if you haven’t charged it to clients. You must be registered for VAT in order to charge it to clients.
3. If you wish to use a business name you must register your business name with the Companies Registration Office (CRO).
4. You may also want a separate business bank account to keep easier track of your business expenses. This can come at a cost but AIB used to have a free online banking option for 1 person companies if you want to check if that is still on offer.
5. TBC – file your preliminary tax – see below for more details on that

There are additional things to file for if you plan to have employees so look into that if that is something you plan on doing.

A good article on sole trader setup can be found here. Though it is slightly out of date.

The big difference to a limited company is that you don’t get any of the tax optimisation options outlined above.

All the money you make must be taken as salary. You pay the same marginal rates as a PAYE earner with the exception that you have a slightly lower credit. Instead of 1,650€, it’s 1,500€.

If you have PAYE income as well as sole trader income, you can only claim the maximum of 1,650€. The sole trader credit is not transferable to your spouse whereas the PAYE credit is transferable.

This is something to consider if you are the only one working and only taking in income from your sole trader business while your spouse is staying home. It will impact your net take home.

Costs

Setup costs are minimal. I believe registration for ROS and VAT are free. Registering your business name online is 20€.

You’ll also want to have your insurance in place before you start trading. This can be an upfront hit before you make any money. Could be anywhere from 500€ and up depending on the cover you require.

The biggest cost which I am still investigating is preliminary tax. This is a tax where you must pay your income taxes upfront for the entire year before you have earned that money. You must make an estimation of what you will earn and pay the income tax upfront.

If you overestimate you will get back the difference when you file at the end of the tax year. If you do not do this you will be charged penalties and interest. If you underestimate, you will need to pay the difference at the end of the year.

I’m still waiting to hear back on how this works for the first year of business. For example, the filing deadline is October, but you start your business in January. Do you file you preliminary tax straight away or do you have until October to file for both your first year and your second year?

Admin

Unlike the limited company, you do not need to do annual accounts and financial statements. You only need to file your self-assessed tax return at the end of every tax year.

If you are over the annual threshold for VAT then you will have to file that too but I’m not sure how that works just yet. With a limited company, it’s a quarterly thing so assume it must be similar with a sole trader company.

Offshore companies

If you are non-Irish domiciled for tax purposes it may be worth looking into an offshore company setup.

I know this sounds dodgy but it’s perfectly legal, though for some reason only a runner for non-Irish domiciled people from what I’ve read. I’m not sure exactly why.

A domicile is a tricky thing that is not written into tax code but put simply if you were born in Ireland you are domiciled to Ireland unless you can prove otherwise in that all ties are cut and you do not intend to live in Ireland later in life. A good way to put it is where do you plan to be buried? This will give a good indication of where your domicile might be.

I’ve heard of people from other EU countries setting up a company in the Isle of Man, for example, working in Ireland, leaving the money in the Isle of Man and incurring no tax as a result.

They got a certificate from Ireland saying no taxes were due and as a result, the double taxation agreement with their home country also said no taxes were due there.

When they finished up they took the cash and bought a house in their home country.

I looked into this option myself and the setup and running costs are pretty high. You’d need to be earning decent income and planning on leaving decent amounts in the company in order for this to pan out.

I stopped my research when I hit a roadblock on not being able to find out how I could invest my money while it was still in the Isle of Man. Also, I could not find any answers on withdrawing that money at the end or any info on company closure costs.

As I would like to “retire” in 5-10 years time, the opening, closing and ongoing operation costs may outweigh the no taxes option.

Also if I want to remit that money to Ireland when I retire, I may need to pay taxes at that point. So I’m back to the keep it simple approach and even if it takes me a few more years I will have less of a headache getting access to the money.

Also not sure how public liability or indemnity works for this kind of business. I might be hard to get cover.

Costs

I got two quotes from two companies. One was almost double the other.

The cheapest was:

• Year 1: 7,080€
• Year 2 and ongoing: 4,200€

I’m not sure these costs are tax-deductible. Also not sure how company expenses work when the company is in the Isle of Man but the work is carried out in Ireland.

The costs are for:

• isle of man company formation (2,880€)
• annual director fees (you need to nominate and pay for a director that is resident on the isle of man – 3,540€) and
• annual account fees (660€)

Admin

I’m not sure the level of admin required but assume it must be similar to the limited company where you need to review and sign off on annual accounts. This may be even more complicated to review as it’s with an offshore company.

Insurance

I also learned a bit about professional indemnity and public liability insurance in my research which is worth sharing.

Professional indemnity (PII)

This type of insurance provides cover for claims against you or your company for actual or alleged negligent acts, errors, omissions or breaches of you or your company’s professional duties when providing a professional service.

Here are some of the things it covers:

• negligence, breach of a duty of care, failure in a duty to educate or failure in a duty to supervise; 
• negligent misstatement or negligent misrepresentation; 
• infringement of intellectual property rights including copyright, trademark or moral rights or any act of passing-off; 
• breach of confidence or misuse of any information, which is either confidential or subject to statutory restrictions on its use; 
• defamation; 
• dishonesty of your individual partners, directors or employees, or sub-contractors or outsourcers directly contracted to you and under your supervision; 
• negligence or breach of a duty of care in connection with the transmission of a computer virus or a denial of service attack; 
• any other civil liability unless excluded elsewhere in the policy

PII works differently to other insurance in that you must have cover when then claim is made as well as when the work was carried out. The amount covered for the claim is under the policy you have when the claim is made.

So you could carry out some work and a few years later your client files a claim. Your current insurance policy and limits will cover that claim.

If you close down your company or cease trading, you must look into something called run-off cover to ensure you have cover for any claims that may occur after you cease trading.

I believe there is a statute of limitations of 6 years or something which the runoff should cover you for.

If you are just getting started and you are unsure of what cover you need you could start with a smaller amount of cover until your client base grows to a point where you would want more cover.

Public liability

This is important if you are meeting clients anywhere outside of your home or you are providing a service on-site at another company.

For example, you are providing talks at a company and someone trips on your extension lead for your projector then you are liable for the damage or injury.

Or if you meet in a coffee shop and your client falls, while the coffee shop will have their own public liability to cover customers, I’m guessing a portion may fall to your for conducting business in a public place.

If you will be meeting people in your home you will need to include that cover in your home insurance policy.

Summary table

So here I am again at almost 5,000 words (facepalm). I hope it was of some use and if I lost you somewhere along the way here is a summary table of most of the findings:

Feature	Employee Umbrella	Director Umbrella	Private Limited Company	Sole Trader	Offshore
Claim business expenses	Yes	Yes	Yes	Yes	?
PRSI status	A (8.8% more)	S	S	S	?
Setup/Close down time and effort	Minimal	Minimal	Heavy	Minimal	?
Setup cost	0€	0€	0€ to 490€	20€	2,880€
Close down cost	0€	0€	600€ to 1,100€	Minimal	?
Running cost/month	85€	119€	145€	0€	405€
Insurance included in monthly cost	Yes	Yes	Yes	No	?
Administration	Minimal	Minimal	Heavy	Medium	?
Can avail of tax optimisations and investment schemes	No	No	Yes	No	?
Personal assets protected	Yes	Yes	Yes	No	?

Other supports

The government has a lot of supports for people starting up businesses. You can find some of the supports listed on this really helpful article.

And that’s a wrap on all I’ve learned about starting up and running a company as efficiently as possible in Ireland.

If I’ve missed anything or got anything wrong please do let me know in the comments below.