3. Business Tax
Corporation Tax Rate
It is welcoming to hear that the Government has once again re-affirmed its
commitment to the retention of Ireland’s 12.5% Corporation Tax rate. In light of
constant media attention surrounding the matter, it is encouraging that the
Government remains determined to retain the 12.5% tax rate, as this is a vital
aspect in attracting foreign direct investment to Ireland.
Research & Development (“R&D”) Tax Credit
The Government has carried out a review of the R&D tax credit regime in 2013 and
has produced a detailed report on its findings. As a result of this review, the
following changes are to be made to the R&D tax credit regime:
The limit on the amount of expenditure outsourced to third parties which
qualifies for the R&D tax credit is to be increased from 10% to 15%.
The amount of qualifying R&D expenditure eligible for the 25% tax credit,
without reference to the 2003 base year, is to be increased from €200,000
to €300,000.
Amendments are to be made to the provisions which allow a ‘key employee’
to use a portion of the R&D tax credit against their income tax liability to
make the scheme more accessible.
Small and Medium Sized Enterprises (“SME’s”)
In Budget 2013, the Government introduced a 10 point tax reform plan containing
measures to assist the SME sector. Budget 2014 contains some additional measures
as follows:
An increase from €1.25 million to €2 million in the threshold for the VAT
cash receipts basis of accounting.
Removal of the Employment and Investment Incentive from the High Income
Earner’s restriction for three years.
The introduction of Capital Gains Tax relief to enable entrepreneurs to
invest and re-invest in assets used in new productive trading activities.
An extension of Capital Gains Tax relief to certain disposals of leased land
to encourage older farmers, who have no children, to lease out their
farmland to younger farmers.
3
4.
Tax Residence
In his speech, Minister Noonan announced that measures would be introduced
to ensure that an Irish incorporated company must be tax resident in at least
one jurisdiction. Although further detail is not yet available, it will be
interesting to see exactly what measures will be introduced and what impact
this will have on Irish incorporated companies.
Ireland’s International Tax Strategy
There has been substantial debate over the last 12 months with regard to the
taxation of multi-nationals, base erosion and profit shifting. In light of this
debate, the Government has published a document entitled ‘Ireland’s
International Tax Strategy’ which sets out Ireland’s approach to international
corporate tax issues. While the publication is not overly detailed, it re-affirms
Ireland's committment to maintaining an open, transparent, stable and
competitive Corporate Tax regime.
Other Measures of Note
A review of the tax reliefs and incentives available in the agri-food and
fisheries sector is to be undertaken.
Restrictions are to be lifted on the ability of banks which transferred loans
to NAMA to utilise tax losses carried forward.
The start date for the new film relief scheme is to be brought forward to
2015, subject to EU state aid approval. Plans to extend the definition of an
"eligible individual" to include non-EU talent in order to attract additional
film productions to Ireland were also announced.
Capital allowances and losses on plant and machinery used in manufacturing
trades which are claimed by passive investors are to become subject to the
high earners' restriction.
4
5. Personal Tax
Income Tax Rates, Bands, Tax Credits and Exemption Limits
With the exception of Deposit Interest Retention Tax (see below), the 2013 levels
of income tax rates and tax rate bands remain unchanged for 2014.
As recommended by the Commission on Taxation in 2009, the One-Parent Family
Tax Credit is to be replaced with a new Single Person Child Carer Tax Credit from 1
January 2014. The new credit will be to the same value but will be available only
to the principal carer of the child. There is no change to the remaining tax credits
and exemption limits for 2014.
Pay Related Social Insurance (PRSI) & Universal Social Charge (USC)
The Minister has announced there will be no changes to PRSI or USC rates and
bands for 2014.
Tax on Savings
To incentivise investment and spending in the economy, Deposit Interest Retention
Tax (DIRT) will be increased from 33% to 41% for interest payments arising from 1
January 2014. The exit tax that applies to life assurance policies and investment
funds will also increase to 41%.
Home Renovation Incentive (HRI)
A scheme of tax relief for home renovation work is being introduced for a period of
two years. The scheme will provide an income tax credit to homeowners who carry
out renovation and improvement on their principle private residence in 2014 and
2015. A credit of 13.5% will be available on all qualifying expenditure greater than
€5,000 up to a maximum limit of €30,000. The credit will be given in the two years
following the year in which the expenditure is incurred.
Qualifying expenditure will include extensions and renovations to the home,
window-fitting, plumbing, tiling and plastering. Relief claims will have to be filed
electronically with the Revenue Commissioners.
Start Your Own Business (SYOB)
A series of measures have been announced under a “Build Your Business Initiative”
in an attempt to promote entrepreneurship. One of these measures is an
exemption from income tax for to individuals who set up a qualifying, unincorporated business and who have been unemployed for a period of at least 15
months prior to establishing the business.
The exemption that can be claimed is subject to a maximum of €40,000 per annum
and will be provided for a two year period.
5
6.
Tax Relief for Medical Insurance
From 16 October 2013, tax relief for medical insurance premiums will be capped on
the first €1,000 per adult insured and the first €500 per child insured. Only the
amount of the premium that exceeds the new thresholds will not qualify for tax
relief.
This will restrict the exposure of the Exchequer in relation to premiums paid for so
called “gold plated” medical insurance policies.
Pensions
In recent years there has been significant speculation on what changes would be
made in the area of tax relief on pensions and limiting high earners ability to
develop large funds. Indeed, each year has seen a gradual curtailment of the tax
reliefs relevant to pensions and today’s Budget continues that trend.
While the Minster has announced that tax relief at the marginal rate of income tax
for contributions will continue to apply, from 1 January 2014 the standard fund
threshold will be reduced from €2.3M to €2M. Individuals with pension rights in
excess of the new lower standard fund threshold on 1 January 2014 will be able to
protect the capital value of those rights by claiming a personal fund threshold,
subject to a maximum of €2.3M.
Technical amendments are also to be made as to how the personal fund thresholds
of defined benefit schemes are calculated and will also come into effect from 1
January 2014.
The 0.6% stamp duty levy on pension fund assets is to increase to 0.75% for the
year 2014. However, the levy will be reduced to 0.15% for 2015.
Tax Relief on Loans to Acquire an Interest in a Partnership
Following on from the abolition of tax relief on loans to acquire an interest in a
company it has been announced, “for reasons of equity”, that the relief that was
available for acquiring an interest in a partnership will also be abolished.
The relief will be withdrawn over four years on a phased basis. Relief will not be
available for any new loans taken out from 15 October 2013. Existing claimants will
receive relief on a reducing rate basis until 1 January 2017.
Taxation of Ex Gratia Lump Sums
Finance Act 2013 imposed restrictions on Top Slicing Relief from 1 January 2013
where the ex gratia payment is €200,000 or over. The relief made it possible for
individuals who receive ex-gratia payments from employers on the termination of
their employments to have the tax arising reduced to the individual’s average tax
over the previous three tax years. The relief is to be abolished and will no longer
be available from 1 January 2014 in respect of any ex-gratia lump sum payments.
6
7.
Employment and Investment Incentive Scheme (EIIS)
The EIIS is a targeted incentive that provides income tax relief for an individual’s
investment in certain unconnected trading companies.
In order to improve the attractiveness of this incentive from an investor
perspective, for a period of three years EIIS investments will not be considered as a
“specified relief” for the purposes of the High Income Earners Restriction (HIER).
This provision will be of benefit to those with relatively higher levels of income
who are seeking to make significant EIIS investments, the maximum permitted per
annum for any given investor being €150,000.
High Income Earner Restriction (HIER)
The Minister announced that capital allowances and losses on plant and machinery
used in manufacturing trades which are claimed by passive investors will now be
treated as a specified relief for the purposes of the high income earners
restriction.
Film Relief
The introduction of the new credit based structure announced in Budget 2013 is to
be accelerated to 1 January 2015 rather than the previously planned date of 1
January 2016. The new structure moves the Film Relief incentive from being a
relief that benefits individual investors to a relief that benefits the production
company directly.
In addition, the definition of “eligible individuals” for the purposes of the relief
(broadly individuals employed in the production of the film/programme) is to be
extended to include non-EU talent. A withholding tax mechanism will also be
introduced to ensure that there is no erosion of the Irish tax take as a result.
The introduction of these provisions is subject to EU State Aid approval.
Living City Initiative
The focus of this initiative is to benefit the construction sector by stimulating the
regeneration of retail and commercial districts and encouraging families to move
back into the centre of Irish cities to live in historic buildings.
The Minster has announced that the Initiative is being extended to include
residential properties constructed up to and including 1914 and certain areas of the
cities of Cork, Galway, Kilkenny and Dublin.
These changes are subject to both EU State Aid approval and a commencement
order.
7
8.
Real Estate Investment Trusts (REITs)
The Minister has announced that he is increasing the investment options available
to the Immigrant Investor Programme to include REITs.
The Immigration Investor Programme is operated by the Department for Justice
and Equality and its purpose is to enable non-EEA nationals and their families who
commit to an approved investment in Ireland to acquire a secure residency status
in Ireland. The Programme was established by the Irish Government in 2012 to
stimulate productive investment in Ireland and to offer an avenue to residency in
Ireland to investors.
Indirect Taxes
VAT
9% reduced VAT Rate
The importance of the tourism sector to the overall economy has been identified
by the Minister in the budget. The 9% VAT introduced in 2011 as part of the
Government’s initiative to assist in the creation of jobs in the sector will be
retained due to its success to date. The rate was due to revert to 13.5% on 31
December 2013.
Cash Accounting Threshold
To assist small to medium businesses with cash flow, and reduce the administration
burden on these business, the VAT cash receipts basis threshold is being increased
from €1.25 million to €2 million from 1 May 2014.
Farmers Flat-Rate Addition
The Farmers Flat-Rate Addition allows farmers not registered for VAT to add a FlatRate percentage to their sales of produce and agricultural services to VAT
registered customers. From 1 January 2014 the Farmers Flat-Rate Addition will
increase from 4.8% to 5%.
VAT Anti-Fraud Measures
In a bid to tackle the shadow economy and protect compliant businesses from
unfair competition a number of VAT Anti-Fraud Measures have been announced by
the Minister.
Disallowance of Input VAT
A business which has not paid for supplies either in full or in part within a period of
six months will be required to repay the VAT claimed on those supplies. This
provision has the aim of assisting small businesses in the area of cash flow.
8
9. Quick Reaction Mechanism
The budget also introduces a quick reaction mechanism which effectively allows
Revenue to apply a temporary and emergency reverse charge mechanism to
address sudden and massive VAT fraud.
Requirement to keep specific records
In circumstances where Revenue have reasonable grounds for believing that certain
records might assist in identifying VAT fraud, provision has been made to allow
Revenue to issue a notice requiring businesses to procure specific information.
Excise Duties
Air Travel Tax
In an attempt to further support the tourism sector, and to allow airlines to
develop new routes the Air Travel Tax will be reduced to 0% with effect from 1
April 2014.
Income Alcohol Products Tax
Excise duty on a pint of beer or cider and a standard measure of spirits will
increase by 10 cents while the duty on a 75cl bottle of wine will increase by 50
cents. These increases will apply from midnight on 15 October 2013.
Tobacco Products Tax
Excise duty on a packet of 20 cigarettes will increase by 10 cents. A pro-rata
increase will apply to other tobacco products. The increases will apply from
midnight on 15 October 2013.
Stamp Duty & Capital Taxes
Capital Gains Tax
Entrepreneurial relief
In his speech, the Minster highlighted Ireland’s relatively low incidence of domestic
entrepreneurial activity compared to our international partners. In response to
this, a new capital gains tax incentive is being introduced to encourage
entrepreneurs to invest and re-invest in assets used in new productive trading
activities. The relief is primarily aimed at “serial” entrepreneurs who invest in
multiple businesses over their lifetime.
The measure will apply where an individual, who has paid capital gains tax on the
disposal of assets, makes investments in a new business in the period 1 January
2014 to 31 December 2018 and subsequently disposes of this investment no earlier
than three years after the date of investment.
9
10. The capital gains tax payable on the disposal of this new investment will be
reduced by the lower of:
(i) the capital gains tax paid by the individual on a previous disposal of assets
in the period from 1 January 2010; and
(ii) 50% of the capital gains tax due on the disposal of the new investment.
The introduction of the relief is subject to receipt of EU State Aid approval.
Property purchase incentive
This incentive provides for relief from capital gains tax (in respect of the first 7
years of ownership) for properties purchased between 7 December 2011 and 31
December 2013 and is being extended by one year to include properties bought to
the end of 2014.
Retirement relief
CGT retirement relief is being further extended to disposals of leased land in
circumstances where, among other conditions, the land is leased over the longterm (a minimum lease of five years) and the subsequent disposal is to a person
other than a child of the individual disposing of the farmland.
The purpose of the measure is to encourage older farmers who have no children to
whom to transfer their farm to lease out their farmland over the long term to
younger farmers.
Capital Acquisitions Tax
No changes to Capital Acquisition Tax were signalled by the Minster in his speech.
However, it is possible that there may be unannounced changes in the forthcoming
Finance Bill, which is due to be published in the coming weeks.
Stamp Duty
Exemption for shares listed on Enterprise Market of the Irish Stock Exchange
The Enterprise Securities Market (ESM) is the Irish Stock Exchange’s market for
growth companies and is specifically designed to meet the funding needs of
companies at earlier stages in their development.
In order to encourage investment in such companies, transfers of shares listed on
this exchange will be exempt from the 1% Stamp Duty that would otherwise apply.
This section is subject to a commencement order.
Levy on Financial Institutions
The Government has decided that a specific contribution to the State’s finances is
to be obtained from the financial sector for the period 2014 to 2016. The
contribution will be related to the amount of tax paid on deposit interest by the
institution in the calendar year 2011 and full details will be contained in the
forthcoming Finance Bill.
10
