Quick Answer: A company with €200,000 of trading income and €20,000 of rental or deposit income pays €30,000.00 in Corporation Tax. Only the trading income gets the famous 12.5% rate; the passive income is taxed at 25%, double it. The blended effective rate is 13.64%, not 12.5%. Chargeable gains are taxed at 33%.
Overview
Ireland's 12.5% rate is the most quoted number in European tax, and it is routinely misapplied. It covers trading income only.
A company actually faces three rates. Trading income is taxed at 12.5%. Non-trading or passive income -- rent, deposit interest, royalties and most dividends -- is taxed at 25%. Chargeable gains are taxed at 33%, higher than either corporation tax rate.
The practical consequence is that a company's real rate is almost never 12.5%. Any rental income, any deposit interest, any investment return drags the blended rate upward. A property holding company pays 25% on everything, and the headline rate never touches it.
How This Is Calculated
Each stream is taxed at its own rate and the results are added:
The blended effective rate is the total tax over total profit. It equals 12.5% only where every euro of profit is trading income, and rises toward 25% as the passive share grows.
What counts as trading is a question of fact rather than election, and Revenue publishes extensive guidance on it. Broadly it requires an actual trade being carried on, with the activity, organisation and commercial risk that implies. Passively holding an asset and collecting income from it is not trading.
Worked Example
€200,000 trading, €20,000 passive:
- Trading: €200,000 × 12.5% = €25,000
- Passive: €20,000 × 25% = €5,000
- Total: €30,000 on €220,000 of profit
- Blended rate: 13.64%, not 12.5%
- The passive mix costs €2,500 more than if all income had been trading
A purely trading company: €220,000 × 12.5% = €27,500, a blended rate of exactly 12.50%. This is the only case in which the headline rate is the real rate.
A property holding company with €220,000 of rent: €55,000, a blended rate of 25.00%. Twice the rate Ireland is known for.
With a €50,000 chargeable gain added: the gain is taxed at 33%, adding €16,500 for a total of €46,500.
What This Does Not Account For
- The 15% Pillar Two minimum rate for groups with consolidated revenue above €750 million, which operates as a top-up rather than a change to the 12.5% rate itself.
- The close company surcharge, an additional 20% on undistributed investment and rental income of a close company, which materially raises the effective cost of retaining passive income.
- The R&D tax credit, increased to 35% in Budget 2026.
- The Knowledge Development Box, offering an effective 10% rate on qualifying intellectual property income.
- Start-up relief under section 486C for new trading companies in their first years.
- Group relief and loss relief, including the carry-back and carry-forward of trading losses.
- Transfer pricing and the treatment of intra-group transactions.
- Double taxation relief on foreign income and the participation exemption for certain foreign dividends.
- Whether the activity is a trade. This calculator takes your classification as given; it is often the whole question.
Common Pitfalls
- Calling 12.5% the corporation tax rate. It is the trading rate. Any passive income is taxed at 25%, and the blended rate is what the company actually pays.
- Assuming rental income is trading income. It is not, unless the company is genuinely carrying on a property trading business. Ordinary landlord activity is passive and taxed at 25%.
- Forgetting the close company surcharge. A close company that retains rather than distributes investment or rental income can face a further 20% surcharge, on top of the 25%.
- Taxing chargeable gains at a corporation tax rate. Gains are charged at 33%, the CGT rate, not at 12.5% or 25%.
- Assuming Pillar Two replaced the 12.5% rate. It applies only to very large groups and works as a top-up to 15%; smaller companies are unaffected.
- Treating the classification as elective. Whether income is trading is a matter of fact determined by the activity, and Revenue examines it.
Frequently Asked Questions
Is Irish corporation tax really 12.5%?
What counts as passive income?
What rate does a property company pay?
How are company capital gains taxed?
Does the 15% global minimum rate apply to me?
Can I choose to classify income as trading?
Sources
- Revenue Tax and Duty Manual Part 02-02-01: "Corporation Tax: General Background" -- the 12.5% trading rate and 25% rate on non-trading income
- Revenue: "Capital gains for companies" -- chargeable gains charged at 33%
- Revenue Tax and Duty Manual Part 02-02-06 -- general guidance on the classification of activities as trading
- Revenue Budget 2026 summary -- R&D tax credit rate increased from 30% to 35%
- All figures verified on 30 August 2026