Ireland Fact-File Part 2:
Individual Business Domestic Taxation

2.14 Ireland Individual Business Tax-Efficient Profit Distribution

Choosing between dividends, salary and fringe benefits

Where dividends are paid out by a limited liability company to its shareholders, there is (domestically) a withholding tax imposed at the standard personal income tax rate, meaning that there is little advantage in receiving income from one's small business in this way, except that sole traders face taxation on the whole of their profits, whereas limited companies can retain and reinvest a portion of their profits, thereby keeping them out of the hands of the taxman in the short-term.

However, a 20% surcharge can sometimes be imposed on certain types of undistributed income held in close companies, which is intended to prevent the ‘illegitimate' use of company structures (following the introduction of the 12.5% rate of corporate tax) to shelter income and postpone distributions to shareholders.

The personal income tax rate is also generally 20% - although changes to relief restriction provisions announced in Finance Bill 2010 have increased this to an effective 30% rate for higher income taxpayers - (rising to 41%), so a salary will face this rate; a PAYE credit would – in other circumstances – usually be available, making this a more attractive option, but the credit is not available for proprietory directors, (defined by the Revenue as “ the company's beneficial owner or director who can control directly/indirectly more than 15% of the company's ordinary share capital”), their spouse, or, usually, their children.

Benefits in kind (such as subsidised accomodation, provision of a company car, and loans offered on preferential terms by employers) are generally taxable above an EUR1,905 threshold.

However, if the employee in question is the director of the company, such benefits are taxable in all instances, as are any other incidental payments or benefits.

Given that there are no especial tax benefits to any one form of remuneration, and indeed some positive disadvantages to certain methods, a mixture of methods, as business circumstances dictate, would seem to be the best bet.