Can I Purchase Investments like stocks and bonds in my Limited Company?
Yes. A limited company is a separate legal entity and as such is entitled to purchase investments subject to Directors and Shareholders approval.
Scenarios & Taxation Pitfalls
Below are two scenarios that will provide an insight into the taxation pitfalls in relation to purchasing investments.
1. Tax on Income generated from Investment income is 25%, this will rise to 40% should the profit remain in company for more than 18 months. If you extract the profit you will be liable to up to 52% tax on the income
Shares Investment =€50,000
Annual Income = €5,000
Corporation tax €1,250
Personal tax = €3,750* 52% = €1,950
Corporation tax surcharge €3,750 x 15% = €562
2. The cost of the investments cannot be written off against Profits. Income generated to build up funds in the company will be subject to 12.5% Corporation tax (in some cases a surcharge of approx. 7% will apply), therefore you have already paid corporation tax on the amount that you have in the company.
Income for year = €100,000
Salary = €60,000
Expenses = €10,000
Investments = €30,000
The taxable profit would be based on €100,000 - €60,000 - €10,000 = €30,000 therefore Corporation tax of €30,000 x 12.5% = €3,750
3. Capital Gains tax: Should you sell your Investments any profit you make from the sale will be subject to Capital gains tax within the company! On liquidation of company their may be a further charge to capital gains on the same money if it is still within the company.
There are two main advantages of purchasing investments through your Limited company:
- It is easier to build up a fund within the company than it is personally, as Corporation tax is lower than Income tax.
- The tax rate on Income relating to investments generated is lower:
Company 25% (40%) v’s Personal 52%