Irish SME owners, directors of family businesses, accountants, and tax professionals handling private limited companies in Ireland should read this. It targets those unsure about company control structures and tax compliance.
Readers will gain clarity on close company definition, control tests, key tax surcharges and charges, exceptions, and practical steps for monitoring status and avoiding penalties through proper planning.
Key Takeaways
A close company is under control of five or fewer participators or director-participators per Section 430 TCA 1997.
Participators broadly include shareholders, loan creditors, and associates like family members.
Tax implications include 20% surcharge on undistributed investment income and 25% on loans to participators.
Professional service close companies face surcharges on undistributed profits if not distributed timely.
Exceptions apply to quoted companies, non-residents without Irish trade, and subsidiaries of non-close companies.
Paul Burke is a qualified ACA and CTA tax accountant in Ireland.He trained at Forvis Mazars in Galway, gaining experience in various tax heads including Income Tax, Corporation Tax, VAT, Payroll and Tax Advisory.He is now a Tax Consultant in a local tax firm.
A close company is defined under Section 430 of the Taxes Consolidation Act 1997 as a company under the control of five or fewer participators, or any number of participators who are also directors. This applies to Irish resident companies and certain non-residents with Irish trade.
What is the 'five or fewer participators' test?
The test checks if five or fewer participators control more than 50% of issued share capital, voting rights, or rights to income/assets on winding up. Participators include shareholders, loan creditors, and those entitled to shares or distributions. Associates like family are included.
What are the tax implications for close companies?
Close companies face a 20% surcharge on undistributed investment income, 25% tax on loans to participators (refundable on repayment), surcharges for professional services companies on undistributed profits, and benefits to participators treated as distributions.
What are exceptions to close company status?
Exceptions include non-resident companies without Irish trade, quoted companies on stock exchanges, companies controlled by non-close companies or certain public bodies like government entities, due to dispersed ownership or other criteria.
How to determine if your company is close?
Examine shareholding, identify participators and associates, calculate combined control over 50% in shares, votes, or assets. Most Irish SMEs and family businesses qualify due to concentrated ownership.
