# surcharge on undistributed estate & Investment income.



## howareya (7 Jun 2006)

Have a company with irish and foreign rents.  just need to clarify a few things.  Are both sources of rents susceptible to this surcharge.

do you automatically take of corporation tax paid and 7.5% and then calculate the surcharge

Would apreciate any help I can get. thanks


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## bazermc (7 Jun 2006)

All undistributed rents irish or foreign, what is called "estate income" is liable to the close company surcharge of 20% not 7.5% - that rate applies to undistributed professional service income

I assume your company is a close company
Has it got positive reserves at year-end? if not it would be illegal to pay a dividend and the surcharge can be avoided.
Also if that undistributed estate income is less than €635 - no surcharge applies its not much but at least you do not have to dividend out all the undistributed estate income


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## howareya (7 Jun 2006)

bazermc said:
			
		

> *All undistributed rents irish or foreign, what is called "estate income" is liable to the close company surcharge of 20% not 7.5% - that rate applies to undistributed professional service income*
> 
> Is there something about reducing the undis estate income by 7.5% and then charging the 20% or am i getting it mixed up with something else??
> 
> ...


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## bazermc (7 Jun 2006)

The 7.5% is a *trading deduction* i.e your reduce your undistributed estate income by 7.5% and tax 92.5% at 20%

However the company must be trading that is it must have trading income taxable at 12.5% and not just rents taxable at 25% in order to get the trading deduction


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## howareya (7 Jun 2006)

Sorry to be a pain but does the co. get this reduction every year. (it is a trading co.)

eg. undis income 2005 €1000
less 7.5%                       75
                                  925
Surcharge                     185

2006        
undis income             925 - 185 = 740
less 7.5%                  740- 55.5 = 684.50
surcharge                   136.90


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## bazermc (7 Jun 2006)

No pain - it gets the trading reduction every year provided its a trading company and has undistributed estate income
Your calculations seems correct for 2005 but you seem to be apply the surcharge again in 2006 on the same income less the surcharge for 2005 - you should be calculating the surcharge in 2006 on the income for 2006 not the 2005 income. Do you get me?

Regarding making a distribution you have 18 months from the end of the accounting period to distribute the 2005 income which means assuming a year-end of 31/12/05 you have till 30/6/06 to pay a dividend that means the surcharge, if no dividend paid, will form part of your corporation tax liability for 2006 to be paid in 2007 i.e. 21/6/07 2nd instalment of corporation tax - it defers the payment for a good year and a half
Remember if you are paying a dividend only pay out enough to leave €635 undistributed as no surcharge arises on that amount


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## howareya (8 Jun 2006)

One more question.  If after the 18 months there is no distributions and i pay surcharge and then the following year there are still no distributions made.  Do I not have to pay the surcharge on the same undis income less surcharge paid in previous yr or is it a once off surcharge.


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## bazermc (8 Jun 2006)

Ok one last question i am going to hold you that!

you only pay the surcharge once. so if there is no rental income say in 2006 you do not pay the surcharge again on the 2005 income if still not distributed - did some one else advise you of that?
not to sure where you are getting the idea of paying it again on the same income - otherwise the surcharge would be extremely penal its already bad enough having to pay it


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## howareya (9 Jun 2006)

I seen it once might just inform how wrong it is.

Thanks very much for your help.  

Really apreciate it.


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