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6.5. Deductions

In general, expenses and outgoings that have been incurred in the production of income are deductible for Ireland tax purposes. While such expenses and outgoings not incurred wholly in the production of income are not.

Specific Deductible Items

The following are deductible when calculating Ireland income tax liability.

Operations Expenses

General expense incurred in the course of operating a business, such as administrative expenses, office supplies, traveling expenses, advertising, etc. are deductible.

Interest expenses

Interest expenses incurred on loans for the productions of taxable income are deductible. Interest expenses incurred on loans for acquiring certain non-trading assets, are also deductible.

In some cases interest payments will be treated as distribution and not tax deductible. Disallowance of interest deduction may occur if the interest rate exceeds a commercial rate, or when interest is paid to a 75% group company outside of the EU unless the company receiving the interest payment is in a treaty country or in a non-treaty country where the interest income is taxed at 12.5% or more.

In addition, interest paid on intra-group borrowings used to finance the purchase of fixed assets from another group company is not deductible.

Bad and Doubtful Debts

Bad and doubtful debts are tax deductible in Ireland if they were incurred in the trade or business of an enterprise and are written off in the accounts of the enterprise as irrecoverable.

Employee Remuneration

Reasonable employee remuneration is deductible when calculating income tax liability. The remuneration must be directly related to services rendered by an employee in the production of taxable income and must be reasonable and realistic. Reasonable directors’ fees are also deductible.

Social Security Contributions

Pay Related Social Insurance (PRSI) contributions are deductible. Contributions to certain qualifying employee pension schemes are deductible as well in the year in which they are paid.

Start-up Expenses

Pre-trading expenses that are incurred prior to the commencement of a business and three years after, are deductible.

R&D Expenses

Expenses incurred in R&D and payments for the acquisition of know-how, patents, and trademark rights are deductible.

Donations

Donations made approved organizations are deductible, including:

  • Charities
  • Educational institutions
  • Schools
  • Churches
  • Research foundations
  • Sports bodies
  • Other approved organizations

The donation to an approved organization must amount to at least EUR 250 in a 12-month period to be deductible.

Entertainment

Entertainment expenses for employees are tax deductible only when they are not associated with the entertainment of third-parties.

Promotional Expenses

Expenses incurred for promotion are generally deductible as long as they are incurred wholly for the purpose of the enterprises trade or business.

Taxes

Unrecovered value-added tax and local taxes are deductible.

Royalties

When royalties are used to produce taxable income, they are deductible, including payments to foreign associated companies as long as the expense does not exceed what would normally be paid to a non-associated enterprise.

Service and Management Fees

When service and management fees are incurred in the production of taxable income, they are deductible, including payments to foreign associated companies as long as the expense does not exceed what would normally be paid to a non-associated enterprise.

Non-Deductible Items

The following items are not deductible for Irish corporate income tax purposes.

  • Dividend distributions
  • Entertainment and gift expenses are not deductible if incurred for third-parties
  • Expenses or losses not actually incurred by an enterprises, including those recoverable by insurance or indemnity
  • Consideration given in the form of shares or right to shares for goods or services or to employees, unless acquired at an arm's length price