Framing the question in terms of rates almost always leads to the wrong answer. The real question is: does the money stay in the company, or does it come out every year?
The fundamental difference
Under income tax, the profit is deemed to be yours as soon as it is made. You are taxed on it even if you have not taken anything out. Under corporation tax, the company is a separate taxpayer: it pays its own tax, and you are only taxed on the salary and dividends you pay yourself.
The rates involved
Regime
IS — reduced rate
- Tax base
- Up to €42,500 of profit
- Rate
- 15%
Regime
IS — standard rate
- Tax base
- Above €42,500
- Rate
- 25%
Regime
IR
- Tax base
- Profit added to household income
- Rate
- Progressive scale
| Regime | Tax base | Rate |
|---|---|---|
| IS — reduced rate | Up to €42,500 of profit | 15% |
| IS — standard rate | Above €42,500 | 25% |
| IR | Profit added to household income | Progressive scale |
When corporation tax wins
As soon as you leave money in the company — to invest, to build a cash buffer, to prepare a hire. Undistributed profit is only taxed once, at company level.
- You reinvest a significant share of the profit.
- Your household is already in a high tax bracket.
- You want to control the year in which you are personally taxed.
When income tax still makes sense
In the first years, when the result is low or negative: a loss can then be offset against the household’s overall income, which corporation tax does not allow. And if you pay out all the profit every year, the gap narrows considerably.
A choice that is hard to undo
Opting for corporation tax is in principle irrevocable once a five-financial-year withdrawal window has passed. That is why this choice is made with an accountant, not with an online comparison tool — this one included.