Data indicates that start-ups in Ireland hit a six year low in 2022, likely owing to the prevailing economic uncertainty caused by high interest rates, inflation, energy insecurity and concern around geopolitical conditions. The last two months of 2022 saw a reversal of this downward trend, something that has been noted as an indication of resilience and a willingness to invest in the market. The broader reality of this sector is that startups account for a significant turnover in Ireland. An instance of this is seen in Irish tech start-ups, which raised €746 million in the first months of 2022.
This article will consider the requirements for setting up a company in Ireland, discussing the national context as one which is pro-business and conducive to startup culture. It will examine the distinct pathways for establishing a business in Ireland, having regard to establishing as a Sole Trader or Limited Company. It will consider the processes relevant under each of these headings, costs and tax liabilities applicable, along with the benefits and disadvantages of each. It will discuss setting up a company in Ireland from abroad, outlining the relevant processes and reliefs available. It will then provide some practical recommendations for individuals considering setting up a company in Ireland.
What to know about setting up a company in Ireland
There are several reasons to establish a business in Ireland:
- Ireland is an advantageous choice strategically; as the only native English-speaking country in the European Union, locating a business here facilitates engagement with the European and US markets.
- From a financial perspective, Ireland boasts one of the lowest corporation tax rates in the EU at 12.5% and a 25% tax credit for tech start-ups’ R&D costs. Ireland also has double taxation treaties in effect with seventy-four countries, allowing eligible foreign investors to claim tax relief from their country of residence. As of 2020, it appears $1.17 billion in startup funding was available to individuals setting up a company in Ireland.
- The broader Irish ecosystem is conducive to a start-up culture. State funding and support have created the conditions for large exits and global success, producing a groundswell of entrepreneurs who have benefitted from the knowledge and mentoring of first-generation founders. Irish businesses have access to a suite of accelerators, investment opportunities and existing business networks that offer mentoring and support mechanisms.
- There is also a landscape of big business, with many global leaders in pharma, digital and medical technology having a significant presence in Ireland. This commercial experience, along with a highly educated population makes Ireland a great location to seek out a competent workforce.
In considering setting up a company in Ireland, it’s important to consider the type of company that is most advantageous to your situation. This depends on the kind of business you wish to establish, who your stakeholders are and your relationship with risk.
There are distinct legal frameworks under which a business can operate in Ireland. This article will consider operating as a Sole Trader and as a Private Company Limited by Shares (Limited Company); these options respectively represent the most straightforward trading structure and the most common company type for commercial purposes. It is recommended that you consult with a solicitor or accountant to decide on the legal structure of your business; see here for a list of registered solicitors in Ireland.
Setting up a Sole Trader company in Ireland
This is the most straightforward way of setting up a business in Ireland, with few formalities. Sole Traders are responsible for business operations and are individually responsible for income tax, PRSI and USC on their profits. Unlike a Limited Company owner or director, Sole Traders are personally liable for debts incurred by the company.
How to register as a Sole Trader in Ireland
To be legally recognised as a Sole Trader you must register as self-employed with Revenue, for which you will need a Personal Public Service number. You can do this through the Revenue Online Service or by submitting a completed tax registration form (TRF). This form can also be used to register for VAT if annual turnover is greater than €75,000 for the supply of goods or €37,500 for the supply of services.
If you choose to adopt a business name, this must be registered with the Companies Registration Office (CRO) within a month of adopting it. This can be done by completing a RBN1 form or registering online using Companies Online Registration Environment.
How much tax does a Sole Trader pay in Ireland
Once registered as self-employed with Revenue, a self-assessment system operates. This requires a Sole Trader to pay a preliminary tax (an estimation of income tax, PRSI and USC for the current year) before 31st October each year, as well as filing the previous year’s annual tax return and resolving any outstanding balance.
For Sole Traders, all income is subject to an income tax of 55% after business expenses are deducted. Income used for personal expenditure is called “drawings” and is not considered a tax-deductible business expense. There is potential for a large tax bill at the end of the year, so incorporating it as a Limited Company may be worthy of consideration at some point.
As of 2023, Sole Traders can claim back the lower of two tax credits, either an Earned Income tax credit of €1,775 or 20% of qualifying earnings. Where the Sole Trader is a PAYE worker in another company, the combined value of their personal tax credit and this earned income tax credit cannot exceed €1,775. It is worth noting that some business expenses can be offset against tax liabilities. Additionally, Sole Traders may be eligible for the SURE Scheme, which provides a refund of PAYE income tax paid over the previous six years.
Pros and cons of setting up as a Sole Trader in Ireland
A clear benefit to the Sole Trader structure is that it is relatively straightforward to establish, only requiring registration as self-employed with the Revenue Office. Disadvantages include the much steeper tax liability of 55% on annual earnings, personal liability for debts to creditors if the business fails and the administration involved in the personal assessment system of assessing tax liabilities.
Setting up a Limited Company in Ireland
A Limited Company in Ireland is considered an individual legal entity, separate from those operating it. It can own assets, trade and incur liabilities independent of individuals involved in its operation. As such profits generated belong to the company and can be extracted by paying shareholder dividends or employees’ salaries. The Companies Act 2014 governs Limited Companies in Ireland and sets out several types of Limited Companies which reflect different economic activities and company structures. Unlike a Sole Trader, the company continues to trade regardless of director activity or management changes. Personal assets of directors or shareholders cannot be seized to resolve company debts if the company is wound up.
How to set up a Limited Company in Ireland
The Companies Act 2014 requires that one or more people form a private company by subscribing to a constitution, which sets out the conditions on which the company is incorporated. Within this document, the name of the company and the fact that it is a Limited Company must be provided. It should also outline the way it intends to operate and regulate itself. It is recommended that you consult with a solicitor or accountant in drawing up this document.
How to register a Limited Company in Ireland
To establish a Limited Company in Ireland, you must register with the Companies Registration Office (CRO), the central repository of public statutory information on Irish companies. A Form A1 must be submitted along with a constitution and incorporation can be completed online. The CRO has provided helpful guidance on company incorporation, which is available here. It is worth noting that processing times for creating a company have reduced drastically, there is a current wait time of approximately three hours for creating a company with the CRO.
How much tax does a Limited Company pay
As a Limited Company exact tax liability in Ireland depends on several factors. Generally, if it is managed nationally, incorporated in Ireland and not subject to the provisions of a double taxation treaty it will be characterised as an Irish tax resident. Once business expenses are deducted, turnover is subject to a corporation tax of between 12.5% and 25%, a factor in the applicable rate is whether directors are residents in Ireland. Other taxes may also be applicable, including Relevant Contracts Tax, VAT and Employers PRSI.
Where a salary is paid to a company director, this can be taxed in the same way as an employee, subject to income tax, USC and PRSI. This is a tax-deductible business expense for the company. It is recommended that you speak to an accountant to discuss salary and dividend options.
Pros and cons of setting up a Limited Company in Ireland
There are several advantages and disadvantages to choosing a Limited Company as your company structure. A central benefit is that as an owner, personal liability is limited to the nominal share capital invested. In the event of the company failing, shareholder liability will not exceed the value of unpaid shares. Additionally, dividends and salaries can be paid to you in a way that minimises tax and national insurance liability. Disadvantages include administrative obligations which include statutory account preparation, company secretarial duties and PAYE procedures.
Cost of setting up a company in Ireland
There is no cost to registering as a Sole Trader in Ireland, aside from the €40 price of registering a business name by submitting a RBN1 form, or €20 for registering the name online with the Companies Online Registration Environment.
There are some costs in setting up a Limited Company, which are applicable depending on the circumstances. See below:
|Submission of Form A1 required to register a new company
|Submission of Form H1/H1-OMC required to restore a company to the register
|Submission of RBN1/RBN1A/RBN1B applications to register a new business name
|Ordering a document image
|Paper copy of company name
|Database search of company name
|Letters of status
Further information on the costs of the establishment and maintenance of a Limited company is available here.
Setting up a company in Ireland from abroad
If you are from the European Union, the broader EEA area or Switzerland, you do not need permission to establish a business in Ireland. If you do not reside in these areas, you may be eligible to apply for permission under the Start Up Entrepreneur Programme. This programme facilitates entrepreneurs to seek permission to establish a start-up and reside in Ireland. Under the Start-Up Entrepreneur Programme, you may apply if you meet the following criteria:
- Are a person of good character
- Have not been convicted of criminal offences in any jurisdiction
- Have the required €50,000 funding available
- Have an innovative business proposal.
Applications for the programme can be submitted electronically and are available here. The following documents are required in making an online application – the completed application form, supporting documentation evidencing the €50,000 funding and the applicant’s good character, as well as a business proposal outlining the business idea. These can be submitted via email to IIP&STEPapplications@justice.ie. Further guidance on making the application is available here. A non-refundable application fee of €350 must be paid to the Department of Justice, details can be found on the website. If the application is deemed successful by the evaluation committee and the Minister for Justice, the applicant will be granted permission to reside in the State.
The Immigrant Investor programme was previously an option for foreign investors, however this programme has been discontinued as of 15th February 2023.
As mentioned previously, double taxation treaties are in place for over seventy countries. So, if a business owner is not resident in Ireland, tax credits may be available for non-refundable tax paid in the other country.
Tips for setting up a company in Ireland
Whatever stage of development you are at in setting up a business in Ireland, there is a wealth of knowledge which can assist you in progressing your startup. If you are in the initial stages of planning or developing a startup; engaging with resources like Irish Tech News and Techstars will provide an insight into the experience of others, platform events to network and make connections, along with providing up-to-date startup news.
Engagement with other founders and entrepreneurs may be beneficial for information sharing, mindset and network development. Meetups like Entrepreneurs Anonymous Dublin and various regional events, along with other industry-specific events are advertised on Meetup and Eventbrite. Opportunities for training, skill development and idea development are available through resources like the Founder Institute, Republic of Work’s NDRC programme and Teamwork Catalyst.
The Ireland Startup Ecosystem Canvas is a helpful resource for developing ideas, launching and scaling startups; providing a helpful founder-led and evidence-based framework for aspiring entrepreneurs. It lists resources relevant to developing company infrastructure, legal and accountancy firms, workspaces and incubators. Local Enterprise Offices (LEO) provide a ‘Start Your Own Business Programme’, which is designed to guide participants through basic business principles and organisational planning. It aims to support entrepreneurs in evaluating the viability of their business idea and making an informed decision about proceeding with it.
The Department of Enterprise, Trade and Employment provides an online self-assessment tool which identifies areas for improvement, designed to enhance skill development for SME leaders. It has also published a helpful map of support environments for entrepreneurs, listing both State and non-State supports. Practical support is also available from your local enterprise office.
If you are considering setting up a business in Ireland, a range of funding and grant options are available. In seeking out finance options for startups, individuals should be aware of certain reliefs available to individuals making qualifying investments in companies, provided specific conditions are met. Incentives provided by Revenue include:
- Employment Investment Incentive (EII); this is a relief designed to promote equity-based finance from third parties.
- Start-up Capital Incentive (SCI); which is aimed at encouraging investment from family members in the initial stages of establishing a startup.
- Start-up Relief for Entrepreneurs (SURE); facilitates an Income Tax refund to assist individuals in establishing their own startups.
Further information on these incentives is available on the Revenue website.
Local Enterprise Offices (LEO) provide several grants aimed at researching the demand and sustainability of the product or service, supporting business start-ups and expansion, reinforcing online trading and targeting export markets. There is financial support available for establishing a business online, accelerating growth and implementing measures to increase the energy efficiency of the business. State funding is available for employers designed to assist with the hiring and retention of employees. More information can be found here.
Microfinance Ireland offers business loans up to €25,000 if the business is an Irish-based company with less than ten full-time employees, is unable to secure finance from commercial lenders and has an annual turnover of less than €2 million.
Investor networking may also add value for entrepreneurs seeking finance options. Halo Business Angel network, Angel Investment Network and Irish Venture Capital & Private Equity Association are some examples of opportunities to connect with equity to bolster startups. Information on seed-stage investors and venture capitalists is available here.
This article has outlined the broad process of setting up a business in Ireland, having regard to the distinct Limited Company and Sole Trader frameworks. It has reflected on the social, commercial and economic conditions present in Ireland, concluding that these are favourable to startups and place entrepreneurs in a strong position. It has outlined the broad set-up costs and tax liabilities relevant to Limited Companies and Sole Traders, providing a brief comparison of the pros and cons. It has also highlighted the potential for setting up an Irish business from abroad, discussing how this might take place and the reliefs available. It has concluded with recommendations for planning and financing startups in Ireland.
Need to know more?
Many individuals become entrepreneurs in the search to pave their own career path. Whether you decide to set up a business as a Sole Trader or through establishing a Limited Company, the career planning journey can be daunting. H-Training provides Career Strategy and Career Coaching (Cork & Dublin offices) to individuals seeking clarity and development in their careers.
Our experience of coaching and strategic development with founders and CEOs has resulted in responsibility for several million-euro verticals within these businesses. H-Training also offers Interview Coaching for candidates looking to make a distinct impression on interview panels, as well as Emotional Intelligence Assessment and Interview Board Training for individuals seeking to improve their management or hiring processes. If you would like to learn more, please contact us to discuss your needs.