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To try and deal with some of the economic problems encountered last year when Ireland’s “Celtic Tiger” economy collapsed in chaos, the Irish Government introduced a tax holiday for companies which commenced trading during 2009 under which, subject to certain conditions, they would pay no tax for a three year period.

As things have not improved for the Irish economy – indeed the problems they have are getting worse rather than better – the Minister for Finance has announced that the three-year tax holiday for new start-up companies will be extended to new start up companies in 2010 as well.

The rationale for the policy stems from the recognition of the seriousness of current economic conditions and the availability of liquidity, and so is designed to assist start-up companies  manage their cash flow.

New start-up companies which commence to trade in 2010 will be exempt from both corporation tax on trading income and on capital gains on the disposal of trade related assets in the first three years in which the trade is carried on. The tax exemption applies to companies where the corporation tax does not exceed €40,000 per year and marginal relief applies where corporation tax payable is between €40,000 and €60,000.

The relief will not apply to trades dealing in development land, working materials and petroleum activities, trades previously carried on by another person and to which the company has succeeded or companies carrying on certain professional service trades.

Clearly the Irish Government are hoping that this measure will help local people who have lost jobs into self employment and also appeal to overseas investors who are needed to help save the economy. Whether it will work or not, remember Irish tax rates are already low compared to most developed countries, remains to be seen.

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