# Tax Rate for Professional Options Trader



## FrCrilly (28 Nov 2012)

Hi All,

I am planning to trade US Options from my laptop computer, being based in Ireland. (as a regular trader, not a one off long term trader)

I am trying to get my head around what tax rates I will be subject to.

As far as I can make out, if I trade as an individual, I would be subject to Ireland’s 30% capital gains tax. 

However, I am aware there may be the possibility of setting up a limited company and instead being subject to 12.5% corporation tax. 

Does anyone know if it’s possible to set up a limited company for purposes of options trading and hence be subject to corporation taxes???

Any help will be greatly appreciated. Thanks in advance for all responses.

(I have little knowledge of tax so please keep it simple).


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## mandelbrot (28 Nov 2012)

Leaving aside the possiblilty of using a company, is this going to be your main job? If so it could be deemed to be a trade, and your income from it would be liable to income tax, PRSI & USC.

Doing it through a company isn't necessarily going to save you much by way of taxes if you intend to take the money out of the company for you to personally enjoy the profits, as you may be faced with a second round of taxation when you extract the funds.


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## Paddy199 (29 Nov 2012)

Firstly, I presume these are options not related to an employment.

*S.532 TCA 1997 specifies that an option is an asset for CGT purposes*. So use of company will result in higger tax (CGT on options in company and CGT/IT on getting money out).

The following taxes apply to options:

*CGT*
The following events have different CGT implications:
Granting, Exercising, Allowing option to lapse & Disposal

The CGT treatment of each is just too much to give here and you should seek professional tax advice.

*Stamp Duty*
Again, the above events have stamp duty implications. 

Due to the high level of uncertainty surrounding the stamping of options, you may need specialist tax advice on this area.

I probably have raised more queries than answered but hopefully you can see that it is subject to CGT and it is complicated (too complicated for posting here).


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## FrCrilly (29 Nov 2012)

Options trading is intended to be my primary/only source of income not related to any employment of another company. 

I intend to seek full tax advice later down the road.

For the moment, I could use an estimate on approximately what total tax deduction I can expect on profits/income. At the moment, I would assume approximately the 30% mark. 
(The logic behind this is that Capital Gains Tax is 30% and it’s also the approximate halfway point between 20% and 41% income tax rates)
If anyone would like to disagree with this, feel free to do so producing another percentage figure. 

(Again, thanks in advance)


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## mercman (29 Nov 2012)

This thread would be best placed under 'Investments'. You might then get a more varied opinion. From what I do know, unless you have another persistent and regular inflow of funds, the Revenue will class your profits liable to Income Tax and will disallow CGT. I'm no expert and although many posts that are placed on AAM are factual and in good faith, but to use a public forum for Tax advice seems crazy.


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## futures (12 Dec 2012)

I trade futures for a living. I can tell you that I and all other independent traders  in Dublin pay income tax at normal income rates. I'm a sole trader, as are most 'locals' - you could incorporate and pay 12.5% corporation tax, but then you'd pay tax on salary drawn down and dividends - this seems to have passed you by?


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## RichInSpirit (12 Dec 2012)

Option trading doesn't look like the simplest way to make money. Taxation may not be a problem if you are losing money hand over fist.


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## futures (13 Dec 2012)

RichInSpirit said:


> Option trading doesn't look like the simplest way to make money. Taxation may not be a problem if you are losing money hand over fist.



Very true! The same goes for any type of trading. Those Peter Brown ads on the radio really grind my gears...

OP, are you currently trading with a firm etc?


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## Jister (17 Dec 2012)

futures said:


> I trade futures for a living. I can tell you that I and all other independent traders in Dublin pay income tax at normal income rates. I'm a sole trader, as are most 'locals' - you could incorporate and pay 12.5% corporation tax, but then you'd pay tax on salary drawn down and dividends - this seems to have passed you by?


 
My understanding, leaving aside whether revenue will see you as a sole trader or a business, is that there is a threshold over which the effecive tax rate is lower in a limited company, ie it becomes 12.5% + 33% of the nett, which is an effective tax rate of about 41% as apposed to the top rate of tax which is about 54% including the USC etc.

So if revenue allowed it you would set up a limited company, pay yourself a salary and once you reach the top rate of tax pay yourself a dividend on the balance.

The other big advantage of a Ltd is you can pay the 12.5% tax and retain the cash within the company to use as cashflow or reinvest in other projects.


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## Rattle (28 Dec 2012)

Jister said:


> The other big advantage of a Ltd is you can pay the 12.5% tax and retain the cash within the company to use as cashflow or reinvest in other projects.



Most likely this would be a close company (as the owner and director would be the same) so there would be a penalty on retained earnings.


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## futures (14 Feb 2013)

Jister said:


> My understanding, leaving aside whether revenue will see you as a sole trader or a business, is that there is a threshold over which the effecive tax rate is lower in a limited company, ie it becomes 12.5% + 33% of the nett, which is an effective tax rate of about 41% as apposed to the top rate of tax which is about 54% including the USC etc.
> 
> So if revenue allowed it you would set up a limited company, pay yourself a salary and once you reach the top rate of tax pay yourself a dividend on the balance.
> 
> The other big advantage of a Ltd is you can pay the 12.5% tax and retain the cash within the company to use as cashflow or reinvest in other projects.


where are you getting 33% from? Link please!? Are you referring to taxation of dividends? 

If he stays a sole trader he won't pay the 12.5% and can retain capital not drawn to his personal bank account (profit in his trading account stays there as margin)


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## ecstatic (3 Apr 2013)

*Hmm*

In getting into a similar position myself but am thinking the only way to do this effectively with compounding the initial funding correctly is the following.

I am sure other poster's will not think this is ethical etc however many corporations are doing similar to this. 

Company in Ireland - Pay myself from this.
Fund a company in an offshore location - How to initially fund it is the hard part?

Company in offshore trades as needed based on IP rights that i sell to this company from Ireland. 

Irish company bills company offshore for services rendered i then pay the usual tax on this as income etc etc. 

The benefit to this is the offshore company gets the retained earnings to be compounded and i exist as a regular employee of the company in Ireland.


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## mandelbrot (4 Apr 2013)

ecstatic said:


> In getting into a similar position myself but am thinking the only way to do this effectively with compounding the initial funding correctly is the following.
> 
> I am sure other poster's will not think this is ethical etc however many corporations are doing similar to this.
> 
> ...


 
What are the IP rights that you're supposedly selling to the offshore co?


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## dublin66 (4 Apr 2013)

If you are doing this full time you would be engaged in a trade.  As a trade in a personal capacity you would be liable to income tax at 20% or 41%.  If you are using a company the 12.5% tax rate would be relevant.    Profits liable to tax would be calculated using normal accounting conventions that apply to financial instruments.  

As pointed out above the advantage of a company is that any retained earnings would be liable to tax at 12.5% as opposed to marginal rates of income tax of 52% or 55% for an individual.

In a company a surcharge would not apply to trading profits but could apply to deposit interst or other similar income. In my view there could be an arguement that such income is part of your trade an thus liable at 12.5% and not 25% passive income rate.

Any funds taken out from the company as salary would be liable to PAYE, USC and PRSI as mentioned above.  

Talk of CGt is not relevant as you are trading.


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## dublin66 (4 Apr 2013)

ecstatic said:


> In getting into a similar position myself but am thinking the only way to do this effectively with compounding the initial funding correctly is the following.
> 
> I am sure other poster's will not think this is ethical etc however many corporations are doing similar to this.
> 
> ...


 
Unless you are taking some very serious tax advice you are going down a very dangerous route.  You are right into transfer of assets abroad legislation (s 806 TCA) that, if applies, would tax all income of offshore company as your personal income in Ireland.  Don't compare yourself to a multinational who have teams of advisors setting up structures that are using a well trodden path.


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## ecstatic (5 Apr 2013)

Dublin66 I have been led to believe by a taxation adviser this is legal and a lot more widespread than person's believe. 

The core issue at hand is that whether this qualifies as your offshore income in which case it is to be constructed as taxable onshore.



There is nothing to suggest i am not allowed to sell the IP right's to my software to an offshore entity and bill them for this service. There is no other way to effectively compound the earnings without being taxed at source. 

Obviously a good testcase is the recent information of 60 irish persons with offshore BVI companies, it will be interesting to see how this pan's out for them. Ill hold off until i see what step's the revenue take on this. 

Dublin66 do you have any information as to what is fully legal would you be of the opinion i should just move to switzerland / malta, i guess this would be 100% ironclad legitimate then without any grey areas ?

Or alternativly i could trade derivatives constructed in such a way as they purport to be gambling vehicles which would then be tax free, the only issue is the API's for these are not mature enough.


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## dublin66 (10 Apr 2013)

Ecstatic,

This may well be legal and widespread. My point is that you should be taking expert tax advice. I am well up on using off-shore vehicles for IP exploitation and how they can be used and it is a very difficult area that is fraught with complex anti-avoidance.

The link you provide is for US purposes and has no relevance in Ireland. You can sell you IP rights, whatever they are, to an off-shore company but that itself is a taxable event that would be liable to either income or capital gains tax. If you are non-domiciled that will have more options but again you are entering a complex area.

If you are talking to a tax advisor ask them how many times they have advised on this and they should be very familar with anti-avoidance. Other areas needing attention include s 806 TCA, s 811, s 896A TCA, offshore funds, off-shore attribution rules and the mandatory disclosure regulations. 

Hope this assists.


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## tradert (18 Apr 2017)

Hi all, 
I too am a futures trader in Dublin. I trade interlay - don't hold overnight positions. I am just starting out on my first large account with a UK broker. 
I presumed I would be earning as a sole trader and be liable at the usual tax band rates. Simple. 
I could register for vat which would be nice, so I can claim vat but do not charge any. So this will be VAT back for any conferences I attend, goods that I buy related to business, internet, home office and phone. 
I thought about the offshore structure, but its a lot of messing about and 'structuring' with the added grey area that may make it illegal if not structured properly. 

I see no reason to operate through a company as i would simply be adding a 12.5% corporate tax on top of earnings tax as an employee of that company. 
Does anyone have any advice to the contrary? 
Is there a better way to look at the company structure? 
Thanks all.


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## Gordon Gekko (18 Apr 2017)

It all depends on the numbers. If your net earnings are €60k and you need €60k to live on, then incorporating makes little sense. If however, your net earnings are €120k, then incorporating probably makes sense.

Incorporating gives you the flexibility to do cleverer things with surplus cash; if there is no surplus cash, it's a moot point.


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