Introduction
It is relatively straightforward to set up a private limited company in Ireland. You can set up a single director company in Ireland which requires a minimum of two people. One EEA resident director and one company secretary. If you don’t have a company secretary you can hire a company to do it which costs roughly €250 + VAT per year. If you are not an EEA resident director you can purchase a non-resident director bond for roughly €2,199 + VAT which lasts for 2 years.
If you are considering starting a business it’s important to note in general, it is only worthwhile setting up a limited company when you have an established business. Only when you are generating a significant profit should you set up a limited company. The amount depends on your situation. If you are not taking a salary from the business and you’d like to reinvest all of the profits in the business then anything over €10,000 is sufficient to justify setting up a limited company. If you are taking a salary then the net profit less your salary should be well above €10,000.
Often you are advised to set up a company sooner than is needed because there are more fees involved for the person giving you the advice. The average self-employed tax returns costs €250 – €350. If you have a company the return can cost €1,000 – €1,500. Make sure you get impartial advice on when is the best time for you.
“Often you are advised to set up a company sooner than is needed because there are more fees involved for the person giving you the advice.”
Advantages of a Limited Company in Ireland
Expenses
You can expense your salary unlike a sole trader which takes the full residual profit as a salary. Also, if you travel a lot employees (including directors) are allowed to claim civil servants rates. In some cases these can be higher or lower than actual expenses depending on your circumstances. These rates are not available to sole traders. Also, as an employee, if you work from home you can claim the e-worker / home worker allowable expense of €3.20 per day.
Tax efficient - More funds to reinvest
If you operate as a sole trader all of your profits are taxed at the PAYE tax rates of 20-40%. In general, most trading companies are taxed at 12.5%. If you have a limited company you will have more funds available to reinvest in comparison to a sole trader.
If you are a new company you can be exempt from paying tax on your profits for the first 3 years of existence. There are a number of conditions, the biggest being you can not transition what was previously your job into a company.
Limited liability - Less Risk
You are not held personally liable for the debts of the company. Your personal assets are protected. Unlike a sole trader who is held personally liable for the debts of the company.As a sole trader if you default on your debts your personal assets such as your home can be sold. If this is a significant advantage really depends on the nature of your business. If you are only supplying your labour then it’s unlikely you’ll have debts. If however you’re buying goods on credit to sell later then it is likely you will have more of a risk.
Access to Start-up Funding
Some startup funds require you to have a limited company. If you are a sole trader you can not apply for certain grants.
More Clients
If you work as a contractor some potential clients will not work with individuals. This is mostly due to the fact they don’t want you classified as an employee. As a result of this most contractors work through a limited company in Ireland.
3 Year Startup Tax Exemption
If you setup a company in Ireland you may be exempt from paying corporation tax for up to 3 years. There are a number of conditions set out on Revenue’s website. The main one being you cannot claim relief if you are transferring an existing trade to a company. Also, your corporation tax must be less than €40,000. If your corporation tax is less than €60,000 partial relief may apply.
Disadvantages of a Limited Company in Ireland
Cost
The setup costs and the annual costs are much higher than a sole trader as mentioned above. To set up a company costs €250-€300 + VAT and the annual accounting fees can be €1,000 -€1,500 per year. A sole trader has no setup costs, you simply register for income tax with Revenue. A self-employed tax return costs €250 – €350.
Penalties
As a company you are required to submit a set of accounts to the CRO If you fail to comply you will be subject to penalties. Also, you will lose your audit exemption which will result in far higher accounting fees.
Privacy
As a limited company you have much less privacy. The accounts you submit to the CRO can be viewed by anyone for a cost of less than €15. Within those accounts a directors salary will also be disclosed.
Losses
Unlike with a sole trader you cannot offset your personal income. For example, as a sole trader you can offset your self-employed expenses against your PAYE income A company is unable to do this.
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