A close company is an Irish resident company that is controlled by five or fewer participators. A participator is somebody who has a share or interest in the capital or income of a company and includes a person who has share capital, voting rights or loan capital in the company.
There are two surcharge taxes on Irish close companies – at 20% and 15%.
Where a close company is in receipt of passive income e.g. rents, dividends and this income is not distributed to its shareholders within 18 months of the accounting period end in which the income arises, a close company surcharge will apply. The surcharge equates to an additional 20% tax on the post-tax undistributed passive income.
Where a close company is a professional service company, the company is liable to a surcharge of 15% on one-half of its undistributed professional income.
Section 441 Taxes Consolidation Act 1997 defines a service company as including close companies where the principal part of the company’s income is derived from the carrying on directly of a profession or the provision of professional services or where the company exercises an office or employment. The tax acts do not define “profession” and therefore case law must be referred to. The case of CIR v Maxse 12 TC 41 stated that a profession involves an occupation “…requiring either purely intellectual skill or of any manual skill controlled as in painting and sculpture or surgery by the intellectual skill of the operation…”
The following have been deemed to be a profession – an accountant, an actor, an actuary, an archaeologist, an architect, an auctioneer, a barrister, a computer programmer, a dentist, a doctor, an engineer, a journalist, a management consultant, an optician, a private school, a quantity surveyor, a solicitor and a vet.
The following have been deemed not to be a profession – a photographer, a stockbroker, an insurance broker, a pharmacist, a public relations company and a tax agent (who was not a member of a professional body).
Again, to avoid paying this additional 15% tax, the company has the option of paying a dividend of an appropriate amount within 18 months of its year end to its shareholders.