Companies pay Corporation Tax as follows. Which option is correct?

• A. 12.5% on their trading profits and 25% on investment income and realised gains.
• B. 25% on their trading profits and 12.5% on investment income and realised gains.
• C. 12.5% on both their trading profits and on investment income and realised gains.
• D. 25% on both their trading profits and on investment income and realised gains.

Answer: (A)

In this structure, corporate tax is split by income type. Trading profits are taxed at the lower rate of 12.5%, while investment income and realised gains are taxed at the higher rate of 25%. This means active business profits benefit from the lower rate, and passive income or capital gains face the higher rate. For example, trading profits of €1,000,000 would incur €125,000 of tax, whereas €1,000,000 of investment income or realised gains would incur €250,000. The other possibilities would either apply the same rate to all income or switch which type gets the lower rate, which doesn’t align with how this tax system is structured.