Irish companies pay corporation tax at 12.5% on trading income and 25% on passive income (e.g., rental income and interest). The CT1 return is due nine months after year-end via ROS, with preliminary tax due in month 11. For 2026, the R&D tax credit rate is 35% (up from 30%), the Knowledge Development Box gives qualifying IP a 10% effective rate, and the KEEP employee share scheme runs to December 2028. Pillar Two’s 15% global minimum tax does not apply to SMEs below €750 million.
Why Corporation Tax Costs Irish SMEs More Than It Should
Every year, thousands of Irish SME directors overpay corporation tax — not because the system is unfair, but because reliefs that could legally reduce their bill go unclaimed. The 35% R&D tax credit, the director pension lever, and the new participation exemption for foreign dividends are three examples that competitor accountants routinely overlook. This guide covers each one with verified sources and real-world examples.
This article covers Ireland’s 2026 corporation tax rates; exact CT1 filing and preliminary tax deadlines; every major relief and credit available to SMEs in 2026; close company surcharge traps; salary vs dividend optimisation; and how outsourced CT filing can save more than it costs.
| Common mistake: Missing or underclaiming reliefs costs far more than professional filing fees. The majority of eligible SMEs never claim the R&D tax credit. |
What Is Corporation Tax in Ireland — and Who Must Pay It?
Corporation tax (CT) is a direct tax on the taxable profits of companies and other bodies corporate resident in Ireland, or carrying on business here through a branch. It is administered by Revenue and is entirely separate from income tax, which applies to sole traders and partnerships — a distinction many new directors miss.
Who Pays Corporation Tax?
The liability falls on different entities depending on where the company is based and where the income arises:
- Irish-resident companies: taxed on worldwide profits, regardless of where those profits arise.
- Non-resident companies with an Irish branch or agency: taxed only on profits arising from Irish sources.
- Sole traders and partnerships: pay income tax, not corporation tax — a critical distinction for anyone moving from self-employment to a limited company.
Any company that commences business in Ireland must register with Revenue within 30 days of that commencement date via eRegistration on ROS.
Ireland’s Corporation Tax Rates in 2026: 12.5%, 25%, and the Pillar Two Question Answered.
Ireland operates two main corporation tax rates, and knowing which applies to which income stream is the first step to an accurate CT bill. Many SMEs are caught out by the passive rate, particularly on intercompany interest.
The 12.5% Trading Rate
The headline 12.5% rate applies to trading income — profits generated from the active carrying on of a trade. Revenue’s definition of “trading” is activity-based, not merely a function of legal form. A company that simply holds investment assets is unlikely to be treated as a trading company, even if it is incorporated.
The 25% Passive Income Rate
A rate of 25% applies to non-trading income, including rental income from Irish property, interest income, and foreign dividends (subject to the participation exemption in Section 6). One trap that catches SME directors: interest charged on intercompany loans is treated as passive income and taxed at 25%, not 12.5%.
Worked Example: A Tech Company
This example shows how a blended rate arises when a company has both trading and passive income streams:
| Income type | Amount |
| Trading profit (software development) | € 90,000 |
| Rental income (passive) | € 15,000 |
| CT on trading income: €90,000 × 12.5% | € 11,250 |
| CT on rental income: €15,000 × 25% | € 3,750 |
| Total CT liability | €15,000 (blended rate: 14.3%) |
Pillar Two: Does It Apply to Your Business?
The Pillar Two global minimum tax of 15% has generated media coverage that has confused many SME directors. The answer is unambiguous: Pillar Two applies exclusively to multinational groups with consolidated annual revenues exceeding €750 million. Irish SMEs — irrespective of size, sector, or employee count — are entirely outside its scope and continue to pay corporation tax at the standard rates described above.
CT1 Filing and Preliminary Tax — Exact Dates, Exact Amounts
Ireland operates a self-assessment system: companies estimate, pay, and file on their own schedule, with the Revenue verifying through audit. Missing a deadline triggers surcharges and interest automatically — there is no grace period or warning letter.
Small Company Preliminary Tax (CT Liability ≤ €200,000)
If a company’s CT liability for the previous period was €200,000 or less, it can be considered a small company for preliminary tax purposes. The first payment is due by the 23rd day of the 11th month, which is 100% of the previous year’s CT or 90% of the current year’s estimated liability.
Large Company Preliminary Tax (CT Liability > €200,000)
Large companies pay two instalments. The first — due by the 23rd day of month 6 — must equal 45% of the current year estimate or 50% of the prior year liability. The second — due by the 23rd day of the month, the 11th — must bring the total to 90% of the current year’s CT liability.
New Companies
Companies in their first accounting period are exempt from preliminary tax if the expected CT liability is below €200,000. They pay the full liability with the CT1 return instead.
CT1 Return Deadline
All companies must file the CT1 electronically via ROS by the 23rd day of the ninth month after period end. For a 31 December 2025 year-end, the deadline is 23 September 2026.
CT1 Deadline Reference Table
| Year-end | Prelim tax due | CT1 return due | Notes |
| 31-Dec | 23-Nov | 23 September (following year) | Most common year-end |
| 31-Mar | 28-Feb | 23 December (same year) | Quarter-end |
| 30-Jun | 31-May | 23 March (following year) | Mid-year |
Late Filing and Payment Penalties
The surcharge is automatic and cannot be appealed on grounds of oversight. Loss relief restrictions compound the damage for companies with carried-forward losses:
| Filing timing | Surcharge | Max surcharge | Loss relief restriction |
| Within 2 months late | 5% of tax due | € 12,695 | 25% restricted (max €31,740) |
| More than 2 months late | 10% of tax due | € 63,485 | 50% restricted (max €158,715) |
In addition, Revenue charges daily interest at 0.0219% on late or underpaid preliminary tax — approximately 8% per year — from the due date until the liability is paid.
Allowable Deductions Every Irish SME Should Be Claiming
Revenue allows a deduction for expenses incurred wholly and exclusively for the trade. Getting this right — especially on capital allowances and pension contributions — is where SMEs leave the most money on the table.
Standard Revenue Deductions
The most common qualifying expenses for SMEs include:
- Salaries, wages and Employer PRSI contributions
- Business premises rent and rates
- Professional fees (legal, accountancy, consulting)
- Cost of business travel and subsistence (within Revenue-approved rates)
- Repairs and maintenance on business assets (not capital improvements)
- Business insurance premiums
- Software licences and subscriptions used for trading purposes
Capital Allowances
Capital expenditure is not directly deductible but is written off through capital allowances over time. The standard rate for plant and machinery is 12.5% per year over eight years. The Accelerated Capital Allowances scheme for energy-efficient equipment — extended to 31 December 2030 in Budget 2026 — allows a 100% write-off in the year of purchase, including qualifying electric vehicles.
| Director Pension Contributions — The Most Overlooked SME Deduction Employer contributions to an executive pension on behalf of a company director are fully deductible for corporation tax and attract zero PAYE, PRSI, or USC. For a director routing €30,000 per year through a pension rather than a salary, the employment tax saving alone can exceed €6,000, while also reducing the company CT bill. Revenue allows deductions for employer pension contributions within age-related earnings limits. Contributions must be made to a revenue-approved scheme and are deductible in the accounting period in which the payment is made. |
Non-Deductible Items
The following are commonly misclassified as deductible but are not:
- Client entertainment (meals, hospitality, events)
- Capital expenditure on fixed assets — claimed via capital allowances instead.
- Fines and penalties levied by the Revenue or courts
- Private expenditure of directors without a genuine business purpose
Companies must retain all financial records and supporting documentation for a minimum of six years. Revenue may request these records during a compliance intervention.
Tax Reliefs and Credits in 2026 — Including the Rate Change Your Accountant May Have Missed
Ireland’s 2026 relief landscape has changed materially. The R&D credit rate increased, the KDB rate was updated in 2023 (though many advisers still quote the old figure), and the participation exemption has been substantially broadened. Each is covered below with sources.
R&D Tax Credit: Now 35% — and Many Accountants Still Cite the Old Rate
The R&D tax credit rate for 1 Jan 2026 will be 35%, as confirmed in the Finance Act 2025. Multiple guides and a few advisers still offer 25% and 30%, respectively, which were the rates before 2023 and 2025. If your adviser has not referred to the 35% rate, you might want to revisit your previous claims.
R&D tax credit is available to any company in Ireland that carries out qualifying R&D, not just to multinationals. Qualifying expenditure is costs for staff, materials, subcontractors (up to 15% of qualifying spend with unrelated parties), and capital expenditure on R&D equipment.
Key 2026 mechanics confirmed in the Finance Act 2025:
- Rate: 35% of qualifying R&D expenditure (up from 30% in 2025 and 25% in 2022)
- First-year payment threshold: €87,500 (increased from €75,000) — payable in full in year one, improving cash flow
- Payment schedule: remaining credit in three annual instalments: 50%, 30%, 20%
- 100% emoluments rule: employees spending 95%+ of their time on qualifying R&D can now be included in full
- Refundable: excess credit over CT liability is refunded by revenue—valuable even in loss-making years
- Claims window: must be submitted within 12 months of the end of the accounting period
When the CT deduction on R&D expenditure is combined with this, the resulting effective tax benefit on qualifying R&D expenditure is among the EU’s most competitive innovation incentives, at 47.5%.
Knowledge Development Box (KDB) — Effective Rate: 10%
Some published guides still say KDB’s effective rate is 6.25%. This rate has been in effect since 30 September 2023. The effective rate has been at 10% since 1st October 2023, following the commencement of the Finance Act 2022, which contains Ireland’s Pillar Two obligations.
The KDB is an OECD-compliant IP regime which provides for a 20% deduction of qualifying profits from the effective CT rate on profits generated from qualifying IP, such as patented inventions and software developed through R&D in Ireland, which results in an effective CT rate of 10% (20% × 80% = 10%). The regime applies to accounting periods starting before 1 January 2027 and is currently under review by the government in 2026.
Start-Up Company Tax Relief
New businesses that start trading from 2009 to 2026 may be completely exempt from corporation tax for 3 years. There is a full exemption for CT total amounts of €40,000 or less and a partial exemption for amounts up to €60,000. Employer PRSI paid funds for the relief, which is used for job creation.
Source: PwC Tax Summaries — Ireland Corporate: Tax Credits and Incentives (March 2026)
Participation Exemption for Foreign Dividends (Updated January 2026)
The Finance Act 2024 (1 January 2025) introduced a participation exemption for foreign dividends in Ireland, in line with most EU jurisdictions. The regime was significantly expanded by the Finance Act 2025, so that the following changes will come into effect from 1 January 2026:
- Shortened holding period: the holding period has been reduced from 5 years to 3 years, provided the paying subsidiary is a resident of a relevant territory.
- Increased scope of territory: dividends from newly signed (but not yet ratified) double tax agreement territories qualify from the date of signature.
- Non-refundable WHT jurisdictions: distributions made from a jurisdiction that taxes the distribution on a non-refundable basis are included.
To qualify, the Irish parent must have an unaudited holding of at least 12% of the ordinary share capital of the paying subsidiary for a continuous period of at least 12 months, and the paying subsidiary must be resident in an EU/EEA country or in a country with a double tax treaty.
KEEP Scheme — Extended to December 2028
The Key Employee Engagement Programme allows qualifying SME employees to exercise share options without incurring income tax, USC, or PRSI on the gain at exercise. The gain is instead subject only to CGT on eventual disposal. Budget 2026 extended KEEP to 31 December 2028, subject to EU State Aid approval — giving smaller companies a longer runway for share-based talent retention.
Loss Relief
Losses from a trade can be carried over to future trades of the same kind indefinitely as long as there are future trades of the same kind to offset the losses. If a company has 75% or more of the subsidiary (group relief), it can transfer the losses to another company in the group in the same accounting period, provided that the other company is profitable.
Close Companies and the Surcharge — What Owner-Managed Businesses Must Watch
The close company surcharge is one of the most commonly missed tax exposures for Irish SME directors. Most owner-managed companies are close companies by definition, and the 18-month distribution window moves quickly.
Definition
A close company is an Irish resident company that has 5 or fewer participators (shareholders or persons with an interest in the company’s capital) or is controlled by any number of its directors. Most owner-managed businesses will meet the criteria if they have only a small number of working shareholders, i.e., fewer than 5 people.
The Surcharge Rates
Two different surcharges can apply depending on the type of undistributed income:
- 20% surcharge on rental income, interest income, income from foreign equities, and investment income in the form of foreign dividends which have been received but not distributed as income within 18 months of the end of the accounting period.
- 15% surcharge on 50% of undistributed income from professional services, such as attorneys, doctors, accountants and other close companies.
De minimis exemption: No surcharge will be levied if the excess of distributable income over distributions is €2,000 or less.
| Practical Monitoring Tip: Review accumulated rental and investment income at each year-end. If it exceeds €2,000 and a 20% surcharge is to be avoided, a dividend declaration within 18 months of the end of the relevant accounting period will reduce or eliminate the exposure. This must be documented and reported on the following year’s CT1 return. |
Salary vs Dividend: How Irish SME Directors Should Structure Pay in 2026
This is consistently the most-searched SME tax question — and the one with the greatest financial impact for directors of owner-managed companies. Yet it is absent from virtually every competitor guide on this topic.
The Three Levers: Salary, Dividend, Pension
An Irish SME director has three primary ways to extract value from the company, each with a distinct tax profile at both the company and personal levels:
| Method | Company tax treatment | Personal tax | Employment taxes |
| Salary | Fully deductible — reduces CT at 12.5% | Income tax at marginal rate (up to 40%) + USC + PRSI | Employer PRSI: 11.25–11.4% |
| Dividend | Paid from post-tax profits — no CT deduction | DWT at 25%, credited against income tax liability | No PRSI on dividend income |
| Employer pension | Fully deductible in the year paid — reduces CT at 12.5% | Tax-deferred: no tax until pension is drawn | Zero PAYE, PRSI, USC on contribution |
Worked Scenario: €100,000 Company Profit
The following comparison is intended to illustrate the situation of a company with a €100,000 trading profit, a director with a higher income tax rate (40%), and employer PRSI (11.25%). All figures are illustrative and simplified.
| Factors | Scenario A: Salary only | Scenario B: Salary + Dividend + Pension |
| Gross profit | €100,000 | €100,000 |
| Salary paid | €100,000 | €40,000 |
| Employer pension contribution | € 0 | € 25,000 |
| Taxable company profit | €0 (salary fully deducted) | €35,000 (after salary + pension) |
| Corporation tax | € 0 | €4,375 (12.5% × €35,000) |
| Post-tax profit available for dividend | € 0 | € 30,625 |
| Director’s income tax + USC + PRSI (approx.) | ~€47,000 on €100,000 salary | ~€18,000 on €40,000 salary + dividend treatment |
| Approximate total tax cost | ~€47,000 | ~€22,375 (saving ~€24,625) |
This is an illustrative model. The optimal split will depend on the director’s personal tax position, pension lifetime limits, and the close company surcharge position. This is precisely where outsourced CT planning pays for itself.
| Next step: Structuring director remuneration is one of the highest-value areas of corporation tax planning for SMEs. Aone’s outsourced CT service includes a remuneration review as standard. See our corporation tax outsourcing service. |
When to Outsource Your Corporation Tax Filing — and What the Service Covers
Professional CT filing is not just a compliance cost — done correctly, it recovers multiples of the fee through claimed reliefs and avoided penalties. These are the clearest signals that in-house management is costing more than it saves.
Signs Your In-House Approach Is Costing You
Consider outsourcing if any of the following apply:
- You are not claiming the R&D tax credit despite carrying out qualifying development work
- Your director’s salary/dividend/pension split has not been reviewed in the last 12 months
- You paid a preliminary tax surcharge or interest charge in the last two years
- Your CT1 was filed late or required an amendment after submission
- You were unaware that the R&D credit rate increased to 35% in January 2026
- You have accumulated rental or investment income and have not reviewed the close company surcharge position
What an Outsourced CT Service Typically Includes
A comprehensive outsourced corporation tax service covers the full cycle from planning to filing:
- Preliminary tax calculation and payment scheduling to avoid interest shortfall
- CT1 preparation, iXBRL tagging, and ROS filing
- Year-end accounts finalisation — linked to the CT1 computation
- R&D tax credit claim preparation and Revenue correspondence
- Director remuneration review: salary, dividend, and pension optimisation
- Close company surcharge monitoring and dividend planning
Aone Outsourcing Solutions is an Ireland-focused tax practice with a dedicated CT1 team that integrates with your existing bookkeeping service support and year-end accounting workflow. All advisers are CTA-qualified and maintain current knowledge of Revenue guidance, ensuring every eligible relief is claimed and every deadline is met.
| Book a call: Find out how much you could save in 30 minutes — aoneoutsourcing.com/ie/corporation-tax-services-ireland |
FAQ: Corporation Tax in Ireland 2026
What is the corporation tax rate in Ireland in 2026?
Trading income is taxed at 12.5% in Ireland, while passive income, including income from rental properties, interest, and most foreign dividends, is taxed at 25%. The 15% global minimum tax applies only to multinational companies with revenues exceeding €750 million – not to the vast majority of Irish SMEs.
When is the CT1 return deadline for Irish companies?
The CT1 is submitted electronically using ROS on the 23rd day of the 9th month after the end of the period. The deadline for the 31st December 2025 year-end is 23 September 2026. Preliminary tax should be paid on the 23rd day of the month (usually 23 November for the year-end in December).
What is the R&D tax credit rate in Ireland for 2026?
The rate is set at 35% for accounting periods starting on or after 1 January 2026, as confirmed in the Finance Act 2025. The threshold for the first year was increased to €87,500. The credit is refundable, paid over three instalments. The total effective benefit of R&D spending is 47.5% when accounting for the CT deduction.
Does the 15% global minimum tax affect Irish SMEs?
No. Pillar Two only applies to multinational groups with annual consolidated revenues exceeding €750 million. Irish SMEs remain unaffected and continue to pay corporation tax at 12.5% on trading income and 25% on passive income.
What expenses can Irish companies deduct from corporation tax?
Deductible expenses must be wholly and exclusively for the trade: salaries and employer PRSI, rent, professional fees, business travel, repairs, insurance, and software subscriptions. Employer pension contributions are also 100% deductible. Capital expenditure is eligible for capital allowances: 12.5% per year for plant and machinery and 100% for qualifying energy-efficient equipment.
What is a close company surcharge in Ireland?
A close company is a company with five or fewer participants or a company with at least five director-shareholders. Surcharges for undistributed rental and investment income (not paid as dividends) are 20% of the income after 18 months from the end of the accounting period. For 50% of the undistributed income from a professional service company, the surcharge rate is 15%. If the excess is €2,000 or less above the distributions, there is no surcharge.
Can I pay myself a dividend instead of a salary to reduce corporation tax?
Dividends do not affect CT: they are paid from after-tax profits. A salary is a deductible expense which lowers taxable profit. The best option is to have a reasonable salary, with the employer contributing to a pension plan (which is fully deductible and has no employment tax applied) and a dividend from the post-tax profits. The best split should be re-evaluated annually.
What happens if I miss the CT1 filing deadline?
For returns submitted more than two months late, an 11% surcharge (maximum €12,695) applies and 21% (maximum €63,485) after two months. The loss reliefs are capped at 25% and 50%, respectively. Any preliminary tax paid late or shortfalls in preliminary tax will be charged daily interest at 0.0219% (which works out to 8% per year).
