Should an Irish contractor use a limited company or umbrella company — how do the taxes compare?

Irish contractors typically operate either through their own limited company or through an umbrella company. The choice affects tax efficiency, administrative burden, and flexibility.

Operating through a limited company (often a single-person or personal service company) allows the director to split income between salary and dividends. Salary is subject to PAYE, PRSI, and USC; dividends are subject to income tax and USC but not PRSI. Retaining profits in the company defers personal tax. Corporation tax in Ireland is 12.5% on trading profits, making it attractive to accumulate profits before extracting them. However, Revenue's PAYE rules for owner-directors are strict, and PRSI must still be paid on a minimum salary.

An umbrella company handles all tax and payroll administration. The contractor is an employee of the umbrella company, which processes their income through PAYE and pays employer PRSI. This is simpler but less tax-efficient: all income is taxed as salary, and there is no opportunity to split income or retain profits.

The key consideration is IR35-style rules. Revenue monitors arrangements where contractors effectively work as employees and may challenge the limited company structure if the engagement resembles employment. Contracts should be genuinely business-to-business.