Sole Trader to Company Formation

I'm technically a "sole trader" and have been operating on that basis for the past 4-years. I own various e-learning courses and this provides passive income.

These days, I do not live in Ireland - however, I am moving back to Ireland in several months time.

I've since been reviewing the tax situation when I return to Ireland. As I have never been taxed in Ireland before, I was curious to learn about how the situation will affect me upon my return.

It seems that I could be hit with a 52pc tax rate as a sole trader.

Clearly, this is a lot, as my income is more than six-figures.

To avoid this, I'm thinking of creating a company for my e-learning course income and having two streams of tax - one from the company taxed at corporation tax rates, and the second rate for any income I draw from the company as "salary". In this way, I can take advantage of the tax rates offered for businesses.

Is this a realistic idea going forward?

Over the coming weeks, I'll be reaching out to CPAs in Dublin who I hope will be able to assist me with company formation, with a tax formulation that works as best it should, and other tax considerations. I work from home, so I'm unsure if there are any tax advantages to deduct in my specific situation.

I'd like to ask others here, far more experienced than me, whether I am approaching this situation from the right perspective? Also, if you have any advice or recommendations from your own personal experience, I would very much appreciate that.

Geuze

Nobody in Ireland pays 52% direct tax on their income.

Yes, there is a marginal tax rate of 52%, made up of:

40% tax
4% PRSI
8% USC

and that applies to any income over about 70k.


So the slice of income over 70k can be taxed at 52%, yes.

Geuze

Note that any dividends or salary drawn from the company are combined, and taxed together.

Geuze

Geuze wrote: »

Note that any dividends or salary drawn from the company are combined, and taxed together.

So if any dividends/salary combines to 30,000, I'd only pay what 20+% on the amount up to 30,000, and the other income that stays in the company is taxed at 12pc, is this right?

davindub

A lot of factors here.

But as a summary which you need to get further advice on:

1. Domicile - remittance basis of tax available if you are not Irish Dom.

2. Transferring a trade is a chargeable transaction for CGT, VAT and stamp duty. Reliefs are available for the 1st two. (Note goodwill will be chargeable to CGT)

3. Cash extraction - dividends not recommended. Pensions and salaries preferable.

4. Location of the income..any company you now set up will be Irish Domiciled, but the trade may be foreign based....

5. Salary 20% up to 35kish, but Prsi and usd also due & tax credits available. Also as a sole trader you have capital allowances etc.

Lots of other factors like cessation rules for your income tax return, balancing charges on capital allowances, where all these items are effected etc.

It might be best to wait until you actually get advice and then try to understand the options.

davindub

davindub wrote: »

It might be best to wait until you actually get advice and then try to understand the options.

I think that's a fair point; I'm lost amid a blizzard of competing details at this point, not knowing what does or does not apply to my circumstances.

Then also, there is the question of finding a reputable CPA to assist me in this long-term process. I've heard many a scare story of incompetent CPAs who are simply not performing to the standard required, and the client ends up the loser.

Trying to figure out which CPA or tax firm to go with is a challenge to say the least. This is made worse by the fact I'm knowledge-deficient in terms of Irish tax and company affairs, meaning any number of nefarious CPAs could capitalize on this ignorance to extract as many fees as possible.