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Close Company Issues

Based on the intended shareholdings the company will have it would be deemed a close company. This has many tax implications. The main ones are as follows:

  • Interest in excess of a specified rate paid to directors or their associates will be treated as a distribution, in other words not deductible for the purposes of corporation tax.
  • Loans or advances to participators or their associates must be made under deduction of tax and, if the loan is repaid, the grossed-up amount is treated as income in the hands of the recipient. Therefore if the company wanted to make a loan to a director of €8,000, it would have to pay income tax of €2,000 to Revenue. When the loan is repaid the Revenue refund the income tax paid.

A surcharge at the rate of 20% is imposed on the undistributed after-tax investment and estate income of close companies. Close "service" companies are also liable to a surcharge of 15% on one-half of their undistributed trading income.