As the Irish economy has steadily improved, many companies have accumulated surplus capital on their balance sheets. This provides funds for developing businesses further in the future.

Traditionally, surplus cash has been left on deposit until required by the business. Cash deposits are seen as low risk however, interest rates are at historic lows of close to zero and have been since 2009. Larger companies are being charged to keep their money on deposit.

Holding your company’s money in cash or on deposit makes sense for maintaining short-term cash-flow but holding too much cash over the past decade has been costly.

It is not surprising companies are looking at alternatives for surplus cash. One alternative is an investment with a Life Insurance company.

For ‘Close Companies’ this can potentially be more efficient for a number of reasons:

  • Company investments only have to pay an exit tax of 25% and are not subject to the potential 33% tax paid on any gains made on direct investment in equity or property. There is no further tax liability.
  • The Close Company surcharge of 20% for undistributed income does not apply to funds held within a life insurance investment bond or savings plan
  • Reduced tax and payment administration – The Life Insurance Company is responsible for the withholding and payment of any tax and not the Close Company itself.
  • There is the potential to defer payment of tax until the 8th Anniversary of policy. While reducing the tax burden, this also has the added advantage of compounding growth overtime compared to where income may be paid annually on direct investments.
  • A life company Investment will typically offer a wide range of fund options offering different levels of exposure to equities, bonds etc. The choice allows the company to diversify its investment options depending on the risk profile of the company and/or its directors.
  • Please note that a government insurance levy of 1% currently applies to all contributions to life assurance products as at 1 December 2018.

Companies considering such an investment should seek professional advice from a Financial Broker or Tax Advisor.