Sole Trader vs Limited Company in Ireland 2026: The Tax Comparison Nobody Shows You

Almost every Irish business owner asks this question at some point, usually when profits start to rise. The articles that come up when you search for an answer tend to list pros and cons without numbers. This guide does the opposite. It puts a sole trader and a limited company side by side at three profit levels using 2026 rates, shows exactly where the saving comes from, and is honest about the cases where a company saves nothing at all.

The short version: a company only saves tax on profit you leave in the company or put into a pension. Profit you take out and spend is taxed at much the same rate either way, and the company costs more to run.

How a sole trader is taxed

A sole trader pays income tax, USC and PRSI on the full profit of the business in the year it is earned, whether or not the money is drawn. For 2026 that means:

• Income tax at 20% on the first €44,000 for a single person and 40% above that, less a personal tax credit of €2,000 and an earned income credit of €2,000.
• USC at 0.5% on the first €12,012, 2% up to €28,700, 3% up to €70,044 and 8% above that, with a further 3% surcharge on self-employed income over €100,000.
• Class S PRSI at 4.2% to 30 September 2026 and 4.35% from 1 October 2026, which Revenue applies as a blended 4.2375% for the year, with a minimum payment of €650.

There is no corporation tax and no second layer of tax when the owner takes money out, because there is no separation between the owner and the business. Our sole trader hub and self-employed income calculator cover the detail.

How a limited company is taxed

A company is a separate taxpayer. It pays corporation tax at 12.5% on its trading profit, after deducting the salary it pays the director, employer pension contributions and other business costs. Rental or investment income inside the company is taxed at 25%.

The director then pays income tax, USC and PRSI personally on whatever salary the company pays them. A director who owns or controls more than 15% of the company is a proprietary director and claims the earned income credit rather than the PAYE credit. A director's PRSI class is decided under social welfare rules: a director who holds at least half the shares is insurable at Class S, and smaller shareholdings are assessed by the Department of Social Protection on the facts. There is no employer PRSI on a Class S director's salary, and the comparison below assumes a sole owner-director on Class S.

The result is two layers of tax: 12.5% inside the company, then personal tax when money comes out. The saving, where there is one, comes from the gap between 12.5% and the owner's marginal personal rate on money that stays inside the company or goes into a pension. Our guide to paying yourself from a limited company covers the extraction options in detail.

The comparison at three profit levels

The figures below compare a single person with no other income at profits of €50,000, €80,000 and €100,000 in 2026. The company scenarios pay the director a salary of €44,000, which uses up the 20% band, and deal with the remainder in two different ways. Figures are rounded and are illustrative; your own position will differ.

Profit of €50,000

• Sole trader: total tax of about €10,350, leaving roughly €39,650 in hand.
• Company, salary €44,000 and €6,000 retained: personal tax of about €7,500 on the salary plus corporation tax of €750, a total of about €8,250. The director has roughly €36,500 in hand and the company holds €5,250 after tax.
• Company, salary €44,000 and €6,000 employer pension contribution: personal tax of about €7,500 and no corporation tax. The director has roughly €36,500 in hand and €6,000 has gone into a pension untaxed.

At this level the company saves around €2,000 to €2,800, but only because €6,000 has been left behind or pensioned. If the director needs the full €50,000 to live on, there is no saving and the company costs more to run.

Profit of €80,000

• Sole trader: total tax of about €25,000, leaving roughly €55,000 in hand.
• Company, salary €44,000 and €36,000 retained: personal tax of about €7,500 plus corporation tax of €4,500, a total of about €12,000. The director has roughly €36,500 in hand and the company holds €31,500.
• Company, salary €44,000 and €36,000 employer pension contribution: personal tax of about €7,500 and no corporation tax. The director has €36,500 in hand and €36,000 in a pension.

Here the gap is real. The €36,000 above the salary would have been taxed at marginal rates of 47% to 52% in the sole trader's hands. Inside the company it bears 12.5%, and inside a pension it bears nothing until it is drawn down in retirement.

Profit of €100,000

• Sole trader: total tax of about €35,500, leaving roughly €64,500 in hand.
• Company, salary €44,000 and €56,000 retained: personal tax of about €7,500 plus corporation tax of €7,000, a total of about €14,500. The company holds €49,000.
• Company, salary €44,000, pension of €44,000 and €12,000 retained: total tax of about €9,000, with €44,000 in a pension and €10,500 held in the company.

The pension figure is capped at €44,000 in the third scenario because, from 2025, an employer's contribution to a director's PRSA is only deductible and free of benefit-in-kind up to 100% of the director's salary for the year.

What the numbers actually show

The retained profit in the company is not the director's money yet. Taking it out later as salary or dividends triggers the personal tax that was deferred. The company route wins when the money is left to work in the business, extracted in a low-income year, built up for a future sale that qualifies for entrepreneur relief, or put into a pension. It does not win when every euro is needed for living costs.

There is also a trap for retained profit that is not reinvested in the trade. If the company earns rent or interest on it, that income is taxed at 25% and may attract the close company surcharge if it is not distributed within 18 months. Professional service companies face a surcharge on half of their undistributed trading income as well. Both are explained in our guide to the close company surcharge.

When the company wins

• Profits are comfortably above what you need to live on, so a meaningful amount can be retained or pensioned each year.
• You want to fund a pension quickly. Employer contributions are deductible for the company, are not a benefit in kind within the limits, and are not restricted by the age-related percentage limits that apply to personal contributions.
• You plan to employ people. Employer PRSI paid on staff wages unlocks start-up relief, which can wipe out corporation tax of up to €40,000 a year for the first five years of a new trade.
• You are building a business to sell. A company share sale can qualify for entrepreneur relief at a reduced capital gains tax rate.
• You need limited liability for commercial reasons, or customers insist on contracting with a company.

When the sole trader wins

• Profits are modest or you need all of them personally. The sole trader pays one layer of tax and no accountancy fees for a second return.
• Your business is a profession or professional service. Start-up relief is not available to service companies, and the close company surcharge applies to undistributed professional income.
• You have losses in the early years. A sole trader can set trading losses against other income such as a spouse's salary under joint assessment. Company losses stay inside the company.
• You want to keep things simple. A company brings CRO filings, annual returns, directors' duties, a CT1 as well as your own Form 11, and payroll for your own salary.

The costs that are not tax

A company has running costs that a sole trader does not. There is a CRO incorporation fee and an annual return every year, with a late filing penalty if the annual return is missed and the risk of losing the audit exemption. There are statutory accounts to prepare, a CT1 and iXBRL accounts to file, payroll to operate for the director, and a Form 11 for the director personally because a proprietary director remains a chargeable person. Accountancy fees for a small company are usually several times what a sole trader pays, and that cost comes off the tax saving before you compare.

Start-up relief is for new trades only

One point that is often missed: a sole trader who incorporates an existing business does not qualify for start-up relief, because the relief excludes a trade that was previously carried on by another person. The company is simply continuing the sole trader's business. If start-up relief matters to you, the time to incorporate is before you start trading, not after a few years as a sole trader.

What happens when you incorporate

Transferring a sole trade into a company is a disposal of the business assets by the sole trader to the company. Goodwill, equipment and any property pass across. Capital gains tax relief on incorporation is available where the whole business is transferred in exchange for shares, and the trade's unused losses do not automatically follow it into the company. Stamp duty, VAT registration, new tax registrations and the treatment of the closing accounts of the sole trade all need to be handled in the right order. It is not difficult, but it is not a form-filling exercise either, and it should be planned rather than done on the day the company is formed.

Getting help with your CT1 and corporation tax

If you are weighing up incorporation, we can run the comparison on your own figures and set out the saving after running costs. If you already have a company, we prepare and file CT1 returns, handle preliminary tax and review prior years for missed reliefs. Contact us today if you need help with CT filings, or get in touch here and we will get back to you.

Sources

The 2026 income tax, USC and credit figures used above are those published following Budget 2026 and reflected in our salary after tax calculator. PRSI rates are from the Department of Social Protection's PRSI Contribution Rates and User Guide 2026 (SW14), which contains Irish Public Sector Information licensed under a Creative Commons Attribution 4.0 International (CC BY 4.0) licence. Corporation tax rules are from Revenue's Tax and Duty Manual Part 02-02-01 and Part 15-03-03 on start-up relief, and the employer PRSA limit is from Chapter 24 of the Revenue Pensions Manual. Information provided courtesy of the Revenue Commissioners under a Creative Commons Attribution 4.0 International (CC BY 4.0) licence.