What are the corporation tax rates in Ireland?
Ireland has a 12.5% corporation tax rate on trading income and a 25% rate on passive income (rents, investments, foreign trades). Large multinational groups with global revenue over €750 million pay a minimum 15% rate under Pillar Two rules.
Detailed Explanation
## Corporation Tax Rates in Ireland 2026
Ireland's corporation tax regime is one of the most influential in the EU. The headline 12.5% trading rate has been a cornerstone of Irish industrial policy since 2003, attracting significant foreign direct investment. Here is how the rates work in practice.
## The Two Main Rates
### 12.5% Trading Rate
The 12.5% rate applies to profits from trading activities
the active operation of a business, the provision of services, manufacturing, and most commercial activities.
For an Irish-incorporated company engaged in genuine trading activities, this is the rate that applies to its profits. It is one of the lowest headline corporate tax rates in the EU and remains the rate that defines Ireland's attractiveness as a business location.
### 25% Passive Rate
The 25% rate applies to:
- Rental income from Irish property (held by a company) - Investment income
interest, dividends from certain foreign companies - **Income from foreign trades**: profits from activities carried on outside Ireland - **Land dealing and development**: certain property transactions
A company cannot achieve the 12.5% rate on passive income by structuring it to appear as trading activity. Revenue examines the substance and nature of activities carefully.
## Pillar Two: The 15% Minimum Rate
From 1 January 2024, Ireland implemented the OECD Pillar Two global minimum tax. This applies to multinational groups with global consolidated revenue exceeding €750 million in at least two of the preceding four years.
For qualifying groups, a Qualified Domestic Top-up Tax (QDTT) ensures that profits taxed at an effective rate below 15% are top-up taxed in Ireland to reach the 15% floor. This effectively eliminates the benefit of the 12.5% rate for large multinationals, though it does not affect the vast majority of Irish SMEs.
## Close Company Surcharge
A close company is broadly an Irish-resident company controlled by five or fewer participators (typically owner-managed SMEs). Two surcharges apply:
- 15% surcharge on undistributed professional service income
if a close company earns income from professional services (consulting, legal, accountancy, etc.) and does not distribute it within 18 months of year-end, a 15% surcharge applies to the retained amount - **20% surcharge on undistributed investment and rental income**: similar rules apply to passive income
The close company surcharges are designed to prevent owner-managed companies from indefinitely deferring tax by retaining income rather than paying dividends. If you run a professional services company, distributing enough of your profits each year can eliminate the surcharge.
## Knowledge Development Box (KDB)
Ireland's Knowledge Development Box provides a 6.25% effective rate on qualifying income from intellectual property developed through qualifying R&D in Ireland. This applies where significant IP has been created through genuine local research and development work.
## How to Calculate Corporation Tax
A simplified calculation:
- Start with pre-tax accounting profit
- Add back disallowable expenses (entertainment, certain depreciation)
- Deduct capital allowances (plant and machinery, industrial buildings)
- Deduct R&D tax credits and other reliefs
- Apply 12.5% to trading profits and 25% to passive profits
- Deduct any double tax relief for foreign taxes paid
- The result is your corporation tax liability
## Corporation Tax Return Filing
Corporation tax is returned via Form CT1 (see separate guide) through ROS. The filing deadline is nine months and 23 days after year-end for online filers.
Preliminary tax must be paid during the accounting period itself (see separate guide on preliminary tax). The balance of tax is due with the CT1 filing.
Source: https://www.revenue.ie/en/companies-and-charities/corporation-tax-for-companies/index.aspx
Real-World Examples
Irish tech SME at the 12.5% rate
A Dublin SaaS company with €500,000 in trading profits pays €62,500 in corporation tax at 12.5%. Its founders are not impacted by Pillar Two (group revenue is under €750 million) and the business qualifies for full 12.5% treatment.
Professional services close company facing the surcharge
A consulting firm (close company) earns €300,000 in professional service income and retains €200,000 to fund growth. If the retention is not distributed within 18 months, a 15% surcharge of €30,000 applies on top of the 12.5% corporation tax already paid.
Property investment company at 25%
A company holds a commercial property generating €80,000 in annual rent. This passive income is taxed at 25%, giving a €20,000 tax liability. The directors cannot reduce this to 12.5% by recharacterising the rental as a management service.
Common Mistakes to Avoid
- Assuming all company income is taxed at 12.5% when rental income, investment income, and foreign trade profits are actually subject to the 25% rate
- Failing to plan for the close company professional services surcharge and finding that retained earnings have generated a surprise 15% additional tax charge after 18 months
- Confusing the Pillar Two 15% minimum with the standard trading rate: Pillar Two only applies to groups with over €750 million in global annual revenue
- Not claiming R&D tax credits that would reduce the effective corporation tax rate on qualifying research and development expenditure
Frequently Asked Questions
Is Ireland's 12.5% corporation tax rate still available after Pillar Two?
Yes, for the vast majority of Irish companies. Pillar Two only applies to multinational groups with global consolidated revenue exceeding €750 million in at least two of the preceding four years. Irish SMEs and most indigenous companies are entirely unaffected and continue to benefit from the 12.5% trading rate.
What income qualifies for the 12.5% corporation tax rate?
Trading income qualifies for the 12.5% rate: profits from actively conducting a business in Ireland, providing services, manufacturing, or most commercial activities. Passive income (rents, investment returns, certain foreign income) is taxed at 25%.
What is a close company in Ireland?
A close company is broadly an Irish-resident company controlled by five or fewer participators (typically the directors and their families in an owner-managed business). Most Irish SMEs are close companies. Close companies are subject to additional surcharges on undistributed professional service income (15%) and passive income (20%).
How does the Knowledge Development Box reduce corporation tax?
The Knowledge Development Box provides a 6.25% effective tax rate on income from qualifying intellectual property that was developed through qualifying R&D in Ireland. It requires that the IP creation involved genuine research and development activity carried out in Ireland.
When does the close company surcharge apply?
The 15% surcharge on professional service income applies when a close company retains professional income without distributing it as dividends within 18 months of the accounting year-end. Planning distributions carefully each year can eliminate this surcharge entirely.
Practical Tips
- Review your close company surcharge position before the 18-month deadline: a dividend to shareholders can eliminate the 15% surcharge entirely and is often cheaper than paying it
- If your company has significant R&D expenditure, claim the 25% R&D tax credit: it applies on top of the deduction you already get for the expense, creating a net subsidy of 12.5% of qualifying spend
- Separate your trading and passive income clearly in your accounts: mixing them makes it harder to demonstrate that trading profits qualify for the 12.5% rate
- If your group revenue is approaching €750 million globally, engage a tax advisor to model your Pillar Two exposure before the threshold is reached
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