CGT – participation exemption on disposal of shares

The gain arising on the disposal by an Irish resident company of shares in a company is exempt from CGT if:

• the holding company holds, for a continuous 12 month period, a minimum of 5% of the shares (including the right to profits and assets on winding up) at the time of disposal.
• the company disposed of is resident in an EU Member State (including Ireland) or in a country where a double taxation treaty is in force with Ireland at the time of disposal
• a trading condition is met at the time of disposal whereby either:
  • the business of the company whose shares are sold consists wholly or mainly of the carrying on of one or more trades
  • taken together, the businesses of the holding company and companies in which the holding company (or the company whose shares are sold) has a direct or indirect 5% or more ownership interest consist wholly or mainly of the carrying on of one or more trades.

The disposal will also be exempt if the holding company has met the minimum holding requirement no earlier than two years prior to the time of disposal.

If the holding company is unable to meet the minimum holding requirement, but is a member of a group (comprising a parent company and its greater than 50% worldwide subsidiaries) and the holding requirement can be met by including holdings of other members of the group, then the gain arising on the disposal will still be exempt. Therefore, the Irish resident company may be exempt from capital gains tax on a disposal of shares even if it does not directly hold a significant shareholding.

The exemption may apply to a disposal of assets related to shares, such as options and convertible debt, but will not apply to the disposal of either shares or related assets that derive the greater part of their value from Irish real property, minerals and mining rights.

In determining if the exemption conditions are met, it should be noted that the holding company need not hold its entire shareholding for the complete holding period; the disposal of shares will be exempt provided it holds 5% of the shares for the holding period.

Similarly, it is not necessary that the holding company dispose of its entire shareholding in order for the gain arising on the disposal to be exempt; once the prescribed holding requirement is met, then the gain arising on any disposal of shares, or assets related to shares, will be exempt.

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