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 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.
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%.
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.
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.
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, un-incorporated 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.
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.
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.
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.
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.
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.
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 Flat-Rate 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.
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.
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
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.
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.
CGT retirement relief is being further extended to disposals of leased land in circumstances where, among other conditions, the land is leased over the long-term (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.
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.