Central Bank of Ireland statistics show Irish companies had cash on deposit of over €142 billion in June 2021. That’s a heck of a lot of unproductive cash earning zero – or possibly negative – returns. If you run a small- or medium-sized business in Ireland, here are five good reasons to consider investing some of your cash.
Interested to discuss SME or company investments? Email us at corporate@moneycube.ie
Based on the assumptions in our comparison below, an Irish owner-managed company, SME or corporate investing its surplus cash could generate an after-tax return of 8.6 times what’s on offer by keeping cash on deposit.
1. Interest rates and inflation
Let’s start with an easy one: it’s no secret that bank interest rates are on the floor – or maybe subterranean. And if you run your own business you’ll almost certainly have seen inflation in costs over the last 18 months.
That combination means that unless you invest it (whether directly in your business, or in financial assets) the value of your cash is being eaten away.
2. Company investments have lower taxes on growth
Using a company is one of the most tax-efficient ways to invest money in Ireland. Exit tax is charged at 25% for corporates (the same level as you’ll pay on interest income – should you ever receive any).
That’s considerably less than the 41% paid by individuals when investing in most mutual funds in Ireland.
3. Start it, add to it, and access your company investment anytime
Companies can easily invest into funds with a one-off lump sum, or via direct debit using regular monthly excess cash, or both. And withdrawing cash is easy too.
One reason many SMEs hesitate to invest the cash on their balance sheet is the need for no-notice access. For sure, nothing beats cash-in-bank for immediate needs. But for cash you can afford to put away for three years or longer – and access it without penalty anytime if circumstances change – investing is a strong contender.
4. Steer clear of the close company surcharge
Most companies in Ireland are small companies. That is, they are controlled by five or fewer shareholders, or by shareholder-directors.
If that’s the case for your business, investment income (including deposit interest) is normally subject to the close company surcharge. The close company surcharge is an additional 20% tax on investment income if it is not paid out to shareholders within 18 months of the end of the accounting period in which it arose.
But if the investment is held within a life assurance policy, it’s exempt from the close company surcharge.
5. Prospects for growth
It’s the whole point of investing after all. There are hundreds of funds to choose from. From cash-and-bond style funds which give a high degree of protection of your company’s capital, to more balanced multi-asset funds offering exposure to equities, property, and commodities, to high risk-reward funds with strong growth track records.
Whatever your company needs when it comes to investing its cash, it’s likely there is an investment fund for the job.
Let’s look at the numbers
We’ll finish with an example of how company investments can work in practice.
In the table below we’ve assumed a five-year investment into a balanced fund delivering 3% annual growth after costs. We’ve compared that to a deposit account, where average interest rates over the five-year period are 0.5% (ie, significantly higher than they are at present).
We should of course warn that these figures are estimates only. They are not a reliable guide to the future performance of this investment. The value of your investments can go down as well as up.
Having said that, based on these assumptions, the investment approach is way ahead of cash idling on deposit.
The result? The investment yields a total return of 11.9% after tax and costs. The deposit produces a total return of 1.4% after tax. That’s a difference of 8.6x.
Interested to discuss SME or company investments? Email us at corporate@moneycube.ie
| Investment in a life policy | Company bank deposit | |
| Investment | ||
| Lump sum | 300,000 | 300,000 |
| Assumed average annual return | 3.0% | 0.5% |
| Growth after 5 years | ||
| Investment value after 6 years | 347,782 | 307,575 |
| Gross return | 47,782 | 7,575 |
| Gross return % | 15.9% | 2.5% |
| Tax | ||
| Exit tax (25% for companies) | 11,946 | |
| Corporation tax (25% on investment income) | 1,894 | |
| Close company surcharge (20%) | 1,515 | |
| Returns | ||
| Net return | 35,837 | 4,166 |
| Net return % | 11.9% | 1.4% |
| Difference in returns | 8.6x | |
