Opening a sole proprietorship in Ireland

Updated on Tuesday 24th January 2023

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A sole proprietorship is the simplest form of business, set up in the name of the owner. The sole proprietorship has become very popular, as more and more persons are interested in working in their own name, rather than being employed in a company.

Being a simple business form, both in terms of the set-up requirements and in terms of the management rules, the sole trader can be attractive for many professionals who are ready to start their own business. However, caution is advisable as this business form is also subject to a high degree of liability.

The sole proprietorship is not a separate legal entity from its owner. If you are interested in registering a sole proprietorship in Ireland, our Irish law firm can provide you with information on the subject.

Sole proprietorship in Ireland

The process of setting up a sole proprietorship is relatively simple and it allows an individual to work for himself. The relevant steps all have to do with setting up a business through which the professional will be able to derive income. This means that certain registrations are made and, in some respects, registering a sole trader is similar to starting a partnership or a company in the sense that the founder provides essential information to the Irish authorities.

Are you looking to start a sole trader? The steps below, briefly outlined by our team, are important:

you can start the business by using your name, but you can also use a business name;
if you choose to use a business name, you will have to register the name at the Companies Registration Office; after the registration, you will receive a Certificate of Business Name;
the Irish legislation states that you should open a new bank account for your business and for this procedure it is necessary to have a Certificate of Business Name;
while this is not a mandatory step for performing activities under a sole trader, it is advisable to sign an insurance policy suitable to your needs;
you may need to obtain a planning permission when you use part of your home for business purpose, for example, if you plan to concert your garage in order to make it a place of business; this planning permission is issued by the local authorities.

Having a business bank account is advisable as you will want to keep the business income separate from the personal income. However, one should note that the liability of the sole trader extends to the personal income.

We invite you to watch our short video about the process of opening a sole proprietorship in Ireland:

Sole trader particularities

While it is common for a sole trader to work alone, there is the option to employ another individual in the business or receive help in running the affairs from an outside party. This can mean that one or more family members can help you run the business. In practice, this is called family employment. When this is the case, the family members who work with you do not have social insurance.

In general, sole traders are entitled to a limited number of social insurance payments given the nature of the contributions they submit.

The rules are different for non-EEA foreign nationals who wish to start a sole trader in Ireland. They have the option to access the Immigrant Investor Programme (which offers a range of investment options subject to a minimum investment and other conditions) or the Start-up Entrepreneur Programme (which is based on an innovative business idea and also having access to minimum funding). If this is your case, our team of attorneys can assist you.

Foreign non-EEA nationals who apply for the Immigrant Investor Programme or the Start-up Entrepreneur Programme are allowed to remain in Ireland for 2 years and they can extend their permit to allow them to remain in the country for another 3 years. Their families can also join them.

Taxation of a sole proprietorship in Ireland

It is necessary to register the sole proprietorship for taxation with the Office of the Revenue Commissioners in Ireland.

We list some of the most important tax issues for this simple business form below:

Before a sole trader can register for tax purposes in Ireland he must have a Personal Public Services Number (PPSN);
The taxation of a self-employed person is done through the self-assessment system.
A Preliminary Tax is due for the following tax year and it is submitted with the annual filing;
The tax return for the previous year is filed no later than 31st of October in the new year;
Keeping proper records is mandatory as these are used to fill in the annual tax return;
The sole trader pays the universal social charge directly to the Revenue (this is done at the same time as filing the annual tax return).

Our lawyers in Ireland can offer you more details about taxes paid under the self-employment system.

For the purpose of taxation in case of sole traders, the universal social charge does not apply when the total income per year is less than €13,000. When the income is above this threshold, the individual is required to pay the universal social charge on the full income.

The lighter bookkeeping for a sole trader, along with the income tax requirements, are part of the reasons why professionals in certain sectors choose this business form. Nonetheless, receiving specialized assistance for tax filing and reporting can be essential even for the simplest business forms. Our accountants in Ireland are ready to answer your questions if you derive income as a sole trader.

The earnings of certain writers, composers and artists is exempt from the universal social charge. Payments made by the Department of Social Protection, such as maternity and paternity benefits and state pension are exempt from this charge.

All sole proprietorships in Ireland are required to keep the records of all services or goods sold or purchased on the market and the sum of money received or paid. A sole proprietorship should also register for VAT only in the following situations:

• the annual turnover is above EUR 75,000 (for goods and products);

• the annual revenue is above EUR 37,500 (for services).

The VAT rates in Ireland are the following:

the standard rate is 23%;
there are a number of reduced rates of 4.8%, 5.4%, 9% and 13%;
some goods and services are 0% rated.

You will also have to register for PRSI (Pay Related Social Insurance); sole proprietorships PRSI contributions belong to the Class S PRSI, which represent a limited tax of social contributions. As a general rule, the PRSI are paid at the rate of 4% on the annual income, but if the income is lower than EUR 5,000, you are exempt from paying any social contributions.

Choosing the business form in Ireland

The sole trader can be a suitable option for many professionals, including accountants, designers, tradesmen such as plumbers and electricians, and other skilled professionals.

Some of the key differences between a limited company and the sole trader are listed below:

Legal capacity: the sole trader is not a separate business form from its founder while the corporation has legal capacity: it can enter into agreements in its own name;
Costs: the corporation may involve higher start-up costs, however, in terms of the taxes on income, the sole trader can be subject to larger taxes;
Formation: the sole trader is easy to set up and to shut down; the company will require a more complex set up process and adequate procedures for winding up;
Credibility: the limited liability company offers more credibility compared to a sole trader; it also offers different options for credit approvals.
Management: the sole trader is easier to manage because there is no need to prepare annual financial statements such as in the case of a company.

All of these differences are worth taking into account when choosing the business form.

If you need further information on the sole proprietorship in Ireland, our Irish lawyers can offer you legal assistance on this matter.

We can also help you open any other type of business, such as a partnership or a limited liability company. We also provide virtual office services.