The pitch is seductive: a sole trader in Ireland hits a marginal rate of 52.35%, while a limited company pays 12.5% on trading profits. Four times cheaper, apparently. In practice a business owner who incorporates and then draws every euro of profit out in the same year ends up worse off than they were as a sole trader. The 12.5% is not a discount, it is a deferral, and the whole decision turns on what happens to the money afterwards. Here is the arithmetic.
Two different tax systems, not two rates
As a sole trader there is one taxpayer. Your business profit is your income, taxed on your Form 11 whether you spend it, reinvest it or leave it in the business bank account. There is no such thing as retaining profit: the tax falls in the year the profit arises.
A limited company is a separate legal person with its own tax return, its own year end and its own rate. Profit is taxed at 12.5% for trading income (25% for passive income such as rent, deposit interest and most foreign income) and then belongs to the company, not to you. Getting it into your hands is a second, separately taxed transaction. Every honest comparison has to price both layers, and most comparisons you will read online price only the first.
The sole trader position: 52.35% and no deferral
For 2026 a single sole trader pays income tax at 20% up to EUR 44,000 and 40% above, with a Personal Tax Credit of EUR 2,000 and an Earned Income Credit of up to EUR 2,000. On top of that sits USC at 0.5% / 2% / 3% / 8%, with the 8% band starting at EUR 70,044 and a further 3% surcharge on self-assessed income above EUR 100,000. Then Class S PRSI at 4.2% rising to 4.35% from 1 October 2026 (Revenue applies a blended 4.2375% to a full-year 2026 assessment), with a EUR 650 annual minimum.
Stack those and the marginal rate is 47.35% between EUR 44,000 and EUR 70,044, 52.35% from EUR 70,044 to EUR 100,000, and 55.35% above EUR 100,000. The offsetting advantages are real though: no employer PRSI, no payroll, no CRO filings, no audit exposure, and losses that can be set against your other income in the same year or carried forward.
The company position: 12.5%, but the money is not yours
An Irish company pays 12.5% on trading profits after deducting your salary and any employer pension contributions, both of which are allowable expenses. That is genuinely low, and it is why a company is a superb vehicle for accumulating capital. The problem is the exit.
There are only three legitimate routes out: salary (deductible for the company, taxed on you as employment income and carrying 11.25% employer PRSI), dividends (not deductible for the company, and taxed on you at income tax, USC and PRSI, so the profit is taxed twice), or a capital event when you eventually sell or liquidate the company (33% CGT, or 10% under Revised Entrepreneur Relief on lifetime gains up to EUR 1.5 million from 1 January 2026). Employer pension contributions are a fourth route and the best one, covered further down.
The 11.25% nobody mentions
Employer PRSI is the hidden cost of paying yourself a salary from your own company. At 11.25% on the full salary with no ceiling, it is a straight extra charge that a sole trader simply does not incur. Pay yourself EUR 80,000 and the company must find EUR 89,000 before anything else happens.
This is why extracting all your profit as salary is usually the worst of all worlds. On EUR 120,000 of pre-remuneration profit, the maximum salary the company can support is EUR 107,865 (because EUR 12,135 goes to employer PRSI). You then pay income tax, USC and employee PRSI of roughly EUR 39,577 on that salary, netting EUR 68,289. The same EUR 120,000 earned as a sole trader nets EUR 73,484. Incorporating and paying yourself everything costs you about EUR 5,200 a year for the privilege of doing more paperwork.
Worked example: EUR 120,000 of profit, three ways
Single person, aged 45, 2026 rates, EUR 120,000 of trading profit before any owner remuneration. Sole trader income tax is EUR 35,200 (EUR 8,800 at 20% plus EUR 30,400 at 40%, less EUR 4,000 of credits), USC is EUR 6,230.62 (including the EUR 600 surcharge on the EUR 20,000 above EUR 100,000) and PRSI is EUR 5,085.00.
| Route | Company-level cost | Personal tax | Cash in your hand | Left in company |
|---|---|---|---|---|
| Sole trader | n/a | EUR 46,515.62 | EUR 73,484.38 | EUR 0 |
| Company, EUR 50,000 salary, rest retained | EUR 5,625 employer PRSI + EUR 8,046.88 CT | EUR 10,351.57 | EUR 39,648.43 | EUR 56,328.12 |
| Company, EUR 50,000 salary + full dividend | EUR 5,625 + EUR 8,046.88 | EUR 38,963.61 | EUR 67,364.51 | EUR 0 |
| Company, everything as salary | EUR 12,134.83 employer PRSI | EUR 39,576.69 | EUR 68,288.48 | EUR 0 |
Read the third row carefully. Extracting the lot through a company costs EUR 52,635 of total tax against EUR 46,516 as a sole trader: incorporating and fully distributing is EUR 6,119 worse. The dividend of EUR 56,328 is taxed at 40% income tax plus 8% USC (plus the 3% surcharge on the part above EUR 100,000) plus 4.2375% PRSI, and the company already paid 12.5% on it. That is the double charge in numbers.
Now read the second row. The same business retains EUR 56,328 inside the company having paid EUR 24,023 of total tax on the whole EUR 120,000, an effective rate of 20.0%. If that money is genuinely being reinvested in stock, equipment, hiring or a cash reserve, the company is the right structure by a wide margin. Compare your own numbers using the Ireland sole trader tax calculator and the Irish limited company tax calculator.
Where the crossover actually sits
The honest answer is that there is no single profit figure. The crossover is driven by the gap between what you earn and what you need to live on. A rough working rule from practice: incorporation starts to pay when your profit is at least EUR 25,000 to EUR 30,000 above your personal drawings, sustained over several years, because that surplus is what gets taxed at 12.5% instead of 52.35%. Each EUR 10,000 of retained profit saves roughly EUR 3,985 of tax in the year it arises.
Below EUR 60,000 of profit the case is usually weak: your marginal rate is 47.35% at most, you probably need all the money, and EUR 2,000 to EUR 3,500 a year of extra compliance cost eats whatever is left. Around EUR 80,000 to EUR 120,000 with modest drawings, the case is strong. Above EUR 150,000 with a real pension strategy, it is usually decisive.
One warning: the deferral only works if you leave the money there. Retaining profit for three years and then extracting it in a lump as a dividend gives you the 12.5% first and the 52.35% later, which is worse than never having incorporated once you count the running costs. If the plan is to take it out eventually as income rather than as capital, incorporating buys you timing, not tax.
The close company surcharge on undistributed income
Revenue anticipated the deferral game. A close company (broadly, one controlled by five or fewer participators, which is almost every owner-managed Irish company) faces a surcharge on certain undistributed income.
Two charges exist. First, 20% on undistributed after-tax investment and rental income. Second, for professional services companies (accountants, solicitors, architects, engineers, doctors, management consultants and similar), 15% on 50% of undistributed after-tax professional income, an effective 7.5%. Crucially, there is no surcharge on ordinary undistributed trading income, so a retailer, manufacturer or software company can accumulate profit indefinitely at 12.5%.
For a professional services company the retained EUR 56,328 in our example would attract a surcharge of EUR 4,224.60 (15% of half of it), lifting the effective rate on retained profit from 12.5% to 20%. Still far better than 52.35%, but it needs to be in the model. You have 18 months from the end of the accounting period to distribute and avoid the charge, and there is a de minimis: no surcharge applies where the surchargeable amount is EUR 2,000 or less, with marginal relief just above that.
Pension funding: the real advantage
If there is one argument that decides the question for high earners, it is this one, and it is not about corporation tax at all. A sole trader claims personal pension relief limited to an age-related percentage of net relevant earnings, capped at EUR 115,000 of earnings: 15% under 30, 20% in your thirties, 25% in your forties, 30% at 50 to 54, 35% at 55 to 59 and 40% at 60 and over. At 45 on EUR 120,000 of profit, the ceiling is EUR 28,750, and the relief is income tax only at 40%, since pension contributions do not reduce USC or PRSI.
A company making an employer contribution to an executive pension on your behalf is not bound by those age-related percentages or by the EUR 115,000 earnings cap. It is bound instead by Revenue maximum funding rules based on salary, service and target pension, and ultimately by the Standard Fund Threshold, which rose to EUR 2.2 million on 1 January 2026 and increases by EUR 200,000 a year to EUR 2.8 million in 2029. The contribution is fully deductible against corporation tax, carries no employer PRSI and is not a benefit in kind.
Rework the example: salary of EUR 50,000, an employer pension contribution of EUR 40,000, and the balance retained. Employer PRSI is EUR 5,625, corporation tax falls to EUR 3,046.88 on the remaining EUR 24,375, and personal tax on the salary is EUR 10,351.57. Total tax across the whole EUR 120,000 is EUR 19,023.45, an effective rate of 15.85%, against EUR 46,515.62 as a sole trader. EUR 40,000 has gone into a pension that a 45-year-old sole trader could not legally have contributed.
What incorporation actually costs to run
Budget realistically for EUR 1,500 to EUR 3,500 a year in accountancy fees, plus payroll processing. The obligations that catch people out: a CRO annual return (Form B1 with financial statements) due within 56 days of your annual return date, where late filing costs EUR 100 plus EUR 3 a day up to EUR 1,200 and loses your audit exemption for two years, which can add several thousand euro; a CT1 corporation tax return within nine months of the year end (by the 23rd of that month); preliminary corporation tax paid 31 days before the year end; and a personal Form 11 for you, because a proprietary director must self-assess regardless of PAYE.
Note also that a director owning more than 50% of the shares pays Class S PRSI, not Class A, so incorporating does not upgrade your social insurance cover. Two things do help new companies: section 486C start-up relief gives up to three years of relief from corporation tax, capped at the employer PRSI paid (EUR 5,000 per employee, EUR 40,000 in total), and the R&D tax credit rose to 35% from Budget 2026 if you carry out qualifying development work.
A decision framework
Stay a sole trader if your profit is under about EUR 60,000, if you need all of it to live on, if you are still loss-making (sole trade losses offset your other income immediately, company losses are trapped in the company), or if the business is genuinely a one-person service with no capital needs and no liability exposure.
Incorporate if you can consistently leave EUR 25,000 or more in the business each year, if you want to fund a pension beyond the age-related personal limits, if you carry meaningful liability or need limited liability for contractual reasons, if you plan to sell the business (share sales can qualify for the 10% CGT rate on gains up to EUR 1.5 million), or if you need to bring in shareholders or employees on equity.
One transitional point: transferring an existing sole trade into a company is a disposal of business assets for CGT, and goodwill can be valuable. Section 600 relief can defer the gain where the whole business is transferred in exchange for shares, but it needs to be planned before the transfer, not discovered afterwards. Incorporate at the start of an accounting period, with a written valuation, and check the VAT transfer-of-business rules apply so you are not charging VAT on the handover.