Below we will go through questions, scenarios, taxation pitfalls and the advantages of purchasing investments as a Limited company.
Can I Purchase Investments like stocks and Funds in my Limited Company?
Yes. A limited company is a separate legal entity and as such is entitled to purchase property subject to Directors and Shareholders approval.
Scenarios & Taxation Pitfalls
Below are two scenarios that will provide an insight into the taxation pitfalls in relation to purchasing investments.
1. Tax on Income generated from Investment income is 25%, this will rise to 40% should the profit remain in company for more than 18 months. If you extract the profit you will be liable to up to 52% tax on the income
Shares Investment =€50,000
Annual Income = €5,000
Corporation tax €1,250
Personal tax = €3,750* 52% = €1,950
Corporation tax surcharge €3,750 x 15% = €562
2. The cost of the investments cannot be written off against Profits. Income generated to build up funds in the company will be subject to 12.5% Corporation tax (in some cases a surcharge of approx. 7% will apply), therefore you have already paid corporation tax on the amount that you have in the company.
Income for year = €100,000
Salary = €60,000
Expenses = €10,000
Investments = €30,000
The taxable profit would be based on €100,000 - €60,000 - €10,000 = €30,000 therefore Corporation tax of €30,000 x 12.5% = €3,750
3. Capital Gains tax: Should you sell your Investments any profit you make from the sale will be subject to Capital gains tax within the company! On liquidation of company their may be a further charge to capital gains on the same money if it is still within the company.
There are two main advantages of purchasing investments through your Limited company:
- It is easier to build up a fund within the company than it is personally, as Corporation tax is lower than Income tax.
- The tax rate on Income relating to investments generated is lower:
Company 25% (40%) v’s Personal 52%
We would advise that you weigh up your options carefully before deciding to purchase investments through your limited company, the short term access to company cash needs to be balanced with the long term tax implications.
Should you wish to arrange a meeting with one of our advisors please contact us by email at firstname.lastname@example.org or call the Icon Accounting Advisory Team on 01 8077106