Tax Tip: Tax Free Gains

Have your company use the Participation Exemption to generate tax-free gains from the sale of shares that it owns in trading companies.

Gains made on the disposal of certain shares are exempt from Capital Gains Tax provided that the following three main conditions are met:

The shareholding condition: the disposal must have taken place either: at a time when the investor company held at least 5% of the shares in the investee for a continuous period of 12 months, or within 2 years of that time.

The residence condition: The investee company must be resident in an EU Member State, a territory with which Ireland has a double tax treaty already in force or in a territory with which Ireland has signed a double tax treaty which has yet to come into force.

The trading condition: At the time of disposal of the shares either

a) the investee company’s business must consist wholly or mainly of the carrying on of a trade or trades, or

b) in the case of a group, the business of the investor company, each company of which the investor is at least a 5% shareholder, the investee company (if the investor company does not hold at least 5% of its shares) and any company in which the investee holds at least 5% of its shares, taken together must consist wholly or mainly of the carrying on of a trade or trades.

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Stephanie Kirby, tax director
Business Advisory

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