A distribution made by a close company to a shareholder is normally treated as an income distribution and so the shareholder is liable to Income Tax, PRSI and USC.
In a share buyback any excess of the payment to the shareholder over the amount originally subscribed for the shares is treated in the same way as an ordinary dividend and is liable to Income Tax, PRSI and USC.
For CGT treatment to apply, the conditions as set out in TCA 1997 must be satisfied.
The main conditions are:
- The company must be an unquoted trading company.
- The disposing shareholder must be Irish resident and ordinarily resident for the tax year in which the sale is made.
- The shares normally must have been owned for a period of at least 5 years.
- The holding company In a group must own at least 51% of the share capital of the subsidiaries.
- The buyback is made mainly to benefit the trade carried on by the company.
- The shareholder’s interest in the company immediately after the purchase must be substantially reduced.
- The shareholder must no longer be connected with the company post sale.
- The buyback is not part of a scheme whose main purpose is to enable the shareholder to share in the profits of the company without receiving a dividend.
Professional advice should be taken.