Are you a close company? Almost certainly
A close company is broadly one under the control of five or fewer participators, or under the control of its directors however many there are.
That description covers the overwhelming majority of Irish owner-managed businesses. If you and one or two others own and run the company, it is a close company, and these rules apply whether or not anyone has mentioned them to you.
The surcharge exists to stop people sheltering income inside a company indefinitely at 12.5% or 25% instead of drawing it and paying personal rates. It is not a penalty for doing something wrong — it is the price of not distributing.
The two surcharges
| Charge | Rate | Applies to |
|---|---|---|
| Investment and rental income surcharge | 20% | Undistributed estate and investment income of a close company |
| Professional services surcharge | 15% | Half of the undistributed professional income of a close service company |
Trading profits are not caught by the investment and rental surcharge. A company that simply trades and retains profit to reinvest is not exposed to it. The exposure arises when the company holds income of a different character.
Where the investment surcharge bites
- A trading company that has accumulated cash and is earning deposit interest on it.
- A company that owns a property and receives rent.
- A company holding investments that generate income.
- A company that has sold its trade and is now sitting on the proceeds.
The first of those catches people constantly. A successful trading company builds a cash balance, the bank pays interest on it, and that interest is non-trading income taxed at 25% — and then surcharged at 20% if it is not distributed within eighteen months.
The professional services surcharge
A close company carrying on a profession, or providing professional services, faces a separate 15% surcharge on half of its undistributed professional income.
This one catches consultancies, practices and professional service companies that retain profit rather than paying it out — precisely the businesses that are often advised to retain profit in the first place. Whether a particular activity is a profession for this purpose is not always obvious, and it is worth establishing rather than assuming.
The eighteen-month window
Both surcharges are avoided by distributing the relevant income within eighteen months of the end of the accounting period in which it arose.
So for a year ended 31 December 2025, the distribution has to be made by 30 June 2027. That is a generous window, and it is also long enough that the deadline arrives well after anyone has stopped thinking about that year.
Planning around it
- Identify non-trading income separately in the accounts each year rather than letting it sit inside a single profit figure.
- Decide deliberately whether to distribute it within the window or accept the surcharge, which is occasionally the right call where extracting it would cost more in personal tax.
- Where the company is accumulating cash, consider whether the cash should be there at all, or whether pension contributions would move it out more efficiently.
- Where property income is the issue, question the structure. Rental income in a company is taxed at 25%, surcharged at 20% if retained, and taxed again on extraction.
- Where the company is a service company, get a view on whether the professional services surcharge applies before you plan around retaining profit.
How it interacts with everything else
The surcharge is one reason the 12.5% headline rate misleads owner-managers. Retaining profit is efficient for trading income and considerably less so for investment, rental or professional income in a close company.
Anyone telling you to leave money in the company without having established what kind of income it is has skipped a step that can cost 20% of it.