Irish companies which are “close” companies are liable to pay a 20% surcharge each year on any investment income (or deposit income) which is not distributed. A “close” company is a business controlled by 5 or fewer participators – i.e. a person who has an interest in the income or capital of a company. Does this sound like your company?
Have you built up reserves in a Deposit Account or through a Share purchase? A lot of people might not even be aware of the Surcharge; your accountant may just organise the payment of it.
Can you avoid this charge?
Yes, you can; a very efficient way of sheltering any reserves in your company from this surcharge is to place the money in funds through an insured arrangement. In simple terms; these are funds managed by Insurance Companies similar to your pension fund. Your company would be the policy owner.
Not only does the use of these vehicles avoid the surcharge but companies also benefit from a reduced EXIT TAX. Only 25% versus 41% that you pay on personal monies.
Your funds grow in a tax-free environment for up to 8 years before the exit tax is payable.
By availing of this opportunity, you will avoid the surcharge and benefit from a reduced exit tax rate of 25%.
Using an Investment Bond allows your money to grow without the Surcharge. However, if you have already accumulated this Investment Income, placing the funds into an Investment Bond will not mitigate the original surcharge liability. These structures work as an alternative to generating surcharge-free growth on your reserves.
For more information or to answer your questions click here to schedule a request a call from one of our financial advisers.