If you are self employed or have an idea to started up your own business, you are probably looking at the advantages of working as a sole trader vs trading as a limited company.
As a sole trader you are under no obligation to file accounts or have an annual audit, both of which add to the costs of operating your business; but you are fully liable for any debts the business incurs and claims that customers may have against you.
For taxation purposes, a sole trader is taxed on the entire income of the business; but with a limited company, you are only taxed on what you draw out of the company -- at the low corporate tax rate of 12.5%.
More detail on the benefits of operating as a sole trader vs limited company:
- Low Irish corporate tax rates & beneficial cash flow. Ireland’s Corporate Tax Rate of 12.5% is one of the lowest in the World. Google is using a network of Irish companies to save millions in taxes. Filings that Google lodged with the US regulatory authorities indicate the multinational’s effective tax rate has dropped from 39 per cent to 31 per cent, indicating it is saving approximately €100 million a year in taxes via its Irish business.
- Limited Liability. Shareholders in a limited liability company are only liable to lose the share capital they subscribe. For sole traders and in partnerships, the individuals personal assets are at risk if there is a claim against the organisation.A company is a legal form of business organisation. It is a separate legal entity and, therefore, is separate and distinct from those who run it. The company (and not the individual shareholders) is the appropriate person to be sued in the event that debts are incurred by the company which remain unpaid, despite demand. (Source: Companies Registration Office)
- Scope for greater company pension scheme to be secured.
- Greater ability to raise finance by the issue of shares and also under the Business Expansion Scheme.
Owners of businesses looking for outside investors or investors looking to invest in unquoted companies may be able to take advantage of the tax incentive known as the Relief for Investment in Corporate Trades, otherwise known as the Business Expansion Scheme (BES). The Scheme provides individual investors with tax relief in respect of investment in certain manufacturing, service, tourism, R & D and plant cultivation companies, companies formed for the purpose of constructing and leasing advance factory buildings and certain music recording activities. By so doing the BES can substantially reduce the cost to an investor or his/her investment. It also enhances the ability of eligible companies to attract outside investment. (Source: Revenue Commissioners)
- Ownership of the enterprise can be spread over a greater number of people.
- Personal tax advantages can accrue.
- There may be a greater degree of business credibility of trading through a limited company.