Business
Close company surcharge: the extra tax on profits kept in the company
Last updated 16 October 2026
Owner-managed companies pay a 20% surcharge on undistributed rent and investment income, and service companies 15% on half their trading income.
A close company is, broadly, one controlled by five or fewer people or by its directors, which covers most family and owner-managed companies. Because corporation tax is lower than the top rate of income tax, owners could leave passive income in the company to avoid tax on dividends. The surcharge is the counterweight.
Two surcharges
- Rent and investment income (section 440): 20% of the ‘distributable’ estate and investment income, meaning the income after corporation tax, less dividends paid for the period. A trading company first reduces this income by 7.5%.
- Service companies (section 441): close companies carrying on a profession or providing professional services also pay 15% on half of their undistributed trading income.
There is no surcharge if the undistributed amount is €2,000 or less, with marginal relief a little above it. The limit is shared between associated companies. Revenue's guidance is in Tax and Duty Manuals 13-02-05 and 13-02-06.
Examples for 2026
| Company | Corporation tax | Surcharge if nothing more is paid out |
|---|---|---|
| Property company, €60,000 rent after costs, no dividend | €15,000.00 | €9,000.00 |
| Same company, €40,000 dividend paid | €15,000.00 | €1,000.00 |
| Consultancy company, €150,000 profit, €20,000 dividend | €18,750.00 | €6,843.75 |
The property company's rent is taxed at 25%, leaving €45,000.00 after tax; kept in the company, that draws a surcharge of €9,000.00. Paying out €40,000 as a dividend cuts it to €1,000.00.
Avoiding it
Dividends paid within 18 months of the end of the accounting period count against that period's income. So a company with a December 2026 year end has until June 2028 to decide. The dividend then carries 25% dividend withholding tax and is taxed as the shareholder's income, which is often more than the surcharge. Retaining profit can still make sense where it funds the trade, and the surcharge applies only to income, not to capital gains.
The corporation tax calculator shows the surcharge that would apply if no further dividends are paid. For taking money out, see salary or dividends.
Work it out
Sources
- Revenue: Tax and Duty Manual Part 13-02-05: surcharge on undistributed estate and investment income of close companies (s.440) (checked 24/10/2026)
- Revenue: Tax and Duty Manual Part 13-02-06: surcharge on undistributed income of service companies (s.441) (checked 24/10/2026)
- Revenue: Corporation Tax: basis of charge (12.5% trading, 25% non-trading and excepted trades) (checked 25/10/2026)
General information, not tax advice. HeyPenny is not a tax agent.