12.5% tax through Irish Co. Is it possible?

[dicko]

A collegue of mine told me how he gets paid. he gets min wage through a uk company. But they are owned by a irish co which he buys a share in. He then gets almost all of his pay from the Irish co's dividends. Since they only pay 12.5 percent tax. That is all he pays. Has anyone heard of this before? Is there a catch ? It sounds too good to be true and not as dodgy as the trust payments etc. Ami missing something?

[nodric]

HMRC for SA106 requires you declare all foreign income, including dividends. Most EU countries levy a withholding tax on foreign dividends, but you need to check if this would apply.

If the Irish company is a real company, and not an offshore collective investment scheme, you may be able to operate like this.
You should talk to an accountant before entering into this type of arrangement!

Dividends can normally only be paid to Directors. To be a Director of an Irish company you have to be an Irish resident. Bonuses on the other hand, are treated exactly the same as income.

The 12.5% tax rate in Ireland was introduced to promote investment into Ireland, and to obtain this rate your company must comply with certain strict requirements, including carrying out a 'real' business in Ireland providing 'real' jobs.

Good article here

There is a broad definition of ‘trading’ and various tests must be satisfied to quality for the 12.5% rate. It is possible to obtain an advance ruling from the Irish Revenue Commissioners on the tax rate that is applicable to the proposed business activities.

The 25% corporation tax rate applies to passive income (investment income, foreign dividends, rental income), net profits from foreign trade and income from certain land dealings and oil, gas and mineral exploitations.

Interesting that line about net profits from foreign trade. Could that contractor income earned in the UK (assuming a UK agency is paying) be considered foreign trade?

Personal tax rates are 20% and 41%, with allowances depending on your marital status.

Hectors word of wisdom below, extracted from form sa106_notes.

Dividend tax credits
UK residents who receive dividends from foreign companies are entitled to a dividend tax credit equal to one ninth of the dividend in certain circumstances. The same applies where the dividends are received by trustees but are treated as the settlor’s income or you are taxable on the income because you have a non-discretionary entitlement to this trust income. This also applies to non-UK residents as long as they qualify for UK personal allowances. You can check if UK personal allowances are available to you at www.hmrc.gov.uk

The dividend tax credit is only available where the shareholding in the foreign company is less than 10% and the foreign company must not be an offshore fund. An offshore fund is an offshore collective investment scheme that may take the form of a non-resident company. Ask your financial advisor or broker if you are not sure whether the shares you hold are in an offshore fund.

[TheFaQQer]

A collegue of mine told me how he gets paid. he gets min wage through a uk company. But they are owned by a irish co which he buys a share in. He then gets almost all of his pay from the Irish co's dividends. Since they only pay 12.5 percent tax. That is all he pays. Has anyone heard of this before? Is there a catch ? It sounds too good to be true and not as dodgy as the trust payments etc. Ami missing something?

No, there is no catch - fill your boots. The only reason that we're not all doing it is because we love paying extra tax to the Treasury.

How does he get any money to spend? The money is left in the company in Ireland, or he should be paying tax when he brings it into the country. If he's not, then when HMRC come knocking, he's going to get reamed.

[malvolio]

He still owes UK tax. He may get a discount for the Irish taxes already paid, but the balance is outstanding. So basically, he's in for at least 7.5% of his gross in unpaid taxes plus interest, rather more if he's in higher rate. And pennalties since he has clearly mis-stated his tax position. Plus whatever the Irish tax authorities may apply under their legisaltion.

Silly boy, is all I can say...

[northernladuk]

he's going to get reamed

Lol good word! Not seen that for awhile..

What's that saying floating around... If it looks too good to be true... etc etc.