Corporation Tax

Today, Minister for Finance, Paschal Donohoe T.D., and Minister for Public Expenditure and Reform, Michael McGrath T.D. presented Budget 2023.

GLOBAL MOBILITY & EMPLOYMENT

Minister Donohoe announced an extension to a number of existing personal tax reliefs including:

• Special Assignee Relief Programme (SARP) is to be extended to the end of 2025.  The minimum income threshold for an employee to qualify for SARP is being increased from €75,000 to €100,000 for new entrants.  Existing claimants will not be affected by this change.  In other words, this higher qualifying threshold will not apply to current claimants availing of the relief.

• Key Employee Engagement Programme (KEEP) is to be extended to the end of 2025.  The lifetime company limit for KEEP shares will be raised from €3 million to €6 million.  KEEP is also being modified to provide for the buy-back of KEEP shares by the company from the relevant employee.
• Foreign Earnings Deduction (FED) which is a relief for employees who are tax resident in Ireland and who travel out of the State to temporarily carry out employment duties in certain qualifying countries was extended for a further three years to the end of 2025. FED provides relief from income tax on up to €35,000 of income.

• Another significant development was the doubling of the Small Business Exemption from €500 to €1,000 effective from 2022. Employers will also be permitted to grant an employee two vouchers/non-cash awards in a single year, provided the cumulative value of the two vouchers does not exceed €1,000.

PERSONAL TAX

Key measures include:

• A significant increase in the Standard Rate Cut-Off Point to €40,000 for single individuals and €49,000 for married couples with one earner. This means that a single person can now earn an additional €3,200 before paying tax at the 40% Income Tax rate.

• An increase of €75 in the Personal Tax Credit, Employee Tax Credit and the Earned Income Tax Credit (all currently set at €1,700). For the tax year 2023 onwards the new tax credits be each be €1,775

• An increase of €100 in the Home Carer tax credit. From 2023 it will be increased to €1,700.

• A reintroduction of the rent tax credit of up to €500 for renters in the private sector for 2023 to 2025. It will be possible to claim this tax credit on a retrospective basis in relation to rent paid in 2022.  One credit per person can be claimed per year.

• The Sea-going Naval Personnel Tax Credit has been extended to the end of 2023.

• An increase in the ceiling of the 2% USC rate from €21,295 to €22,920.

• The exemption from the top rate of USC for medical card holders, and those aged over seventy years earning under €60,000 will continue beyond 2022. In other words, the reduced rate of 2% USC will be extended until the end of 2023.

• There is no increase to Employer’s PRSI rates.

ENTERPRISE

• The Temporary Business Energy Support Scheme (TBESS) was introduced to support trading businesses. The scheme will be open to businesses carrying on a Case I trade that are tax compliant and have experienced a significant increase in their natural gas and electricity costs. Businesses carrying on trading activities will be eligible for a refund of 40% on the increase in electricity and gas prices, subject to a monthly cap of €10,000 per trade.  Detailed information on the scheme has not yet been published, however, it is believed the scheme will operate by comparing the average unit price for the relevant period in 2022 with the average unit price for the corresponding period in 2021. If the increase in average unit price is more than 50% then the business will be eligible for the scheme. Businesses will be required to register for the scheme and to make claims within the required time limits.  This scheme is subject to State Aid approval from the EU.

• Amendments will be made to the R&D tax credit regime with respect to how repayments are made under the scheme which will ensure the regime is regarded as a “qualifying refundable credit” for the purposes of the Pillar Two Model Rules. Currently the R&D tax credit is firstly offset against current and prior year corporation tax liabilities followed by repayment over three instalments. The current system is being changed to a new fixed three-year payment system. A company will have an option to call for payment of their eligible R&D Tax Credit or to request for it to be offset against other tax liabilities. In other words, the changes will enable taxpayer companies to call for the payment of their R&D tax credits in cash or for these to be offset against its tax liabilities in this three-year fixed period. The existing caps on the payable element of the credit are being removed. The first €25,000 of a claim will now be payable in the first year.  Transitional measures will be introduced for one year for those that already engaged in R&D activities and claiming the credit

• An extension to the Knowledge Development Box regime for a further four years to 31^st December 2026. Currently the KDB provides for a 6.25% effective rate of corporation tax on profits generated from exploiting certain assets, including patents and software developed through R&D activities carried out in Ireland. In preparation for the changes under the OECD Pillar Two agreement, the effective rate under the KDB regime is to be increased from 6.25% to 10%.  The policy document released by the Department of Finance states that the commencement of this rate will be determined by reference to international progress on the implementation of the Pillar Two Agreement but it is expected in 2023.

• The extension of the Film Corporation Tax Credit until December 2028. Film relief is granted at a rate of 32% of qualifying expenditure which is capped at €70 million.

PROPERTY

Help-to-Buy Scheme

The scheme will continue at current rates for another two years and will expire on 31^st December 2024

Vacant Homes Tax (“VHT”)

A VHT will apply to residential properties which are occupied for less than 30 days in a 12 month period.

Exemptions will apply where the property is vacant for “genuine reasons.”

The applicable tax rate is three times the existing local property tax (“LPT”) rate

Residential Development Stamp Duty Refund Scheme

The stamp duty refund scheme will continue until the end of 2025.

The stamp duty residential land rebate scheme allows for a refund of eleven-fifteenths of the stamp duty paid on land that is subsequently developed for residential purposes. was due to expire on 31 December 2022. It has been extended to the end of 2025.

Pre-letting Expenses on Certain Vacant Residential Properties

The limit for landlords claiming allowable pre-letting expenses is to be increased from €5,000 to €10,000.

The vacancy period is to be reduced from 12 months to 6 months.

Levy on Concrete Blocks, Pouring Concrete and other Concrete Products

A 10% levy was announced in response to the significant funding required in respect of the defective blocks redress scheme. A 10% levy will be applied to concrete blocks, pouring concrete, and certain other concrete products

This levy applies from 3rd April 2023.

VAT

9% VAT rate for hospitality and tourism sector

The 9% VAT rate currently in place to support the tourism and hospitality sectors will continue until 28^th February 2023.

9% VAT rate on electricity and gas supplies

The temporary reduction in the VAT rate applicable to gas and electricity supplies (from 13.5% to 9%) will be extended to 28^th February 2023.

Farmers’ Flat-Rate Addition

The flat-rate addition is being reduced from 5.5% to 5% in accordance with criteria set out in the EU VAT Directive.

This change will apply from 1^st January 2023.

Zero-rated supplies

From 1^st January 2023 VAT on newspapers, including digital editions will be reduced from 9% to 0%.

On 27th April 2022 Revenue updated its guidance material to provide clarity on the tax treatment of transactions involving crypto-assets.  This latest publication also provides worked examples.

The terms “cryptocurrency” and “cryptocurrencies” are not defined.

The Irish Central Bank places cryptocurrencies, digital currencies, and virtual currencies into the same category of digital money. It is important to bear in mind, however, that although defined in this manner, these “currencies” are unregulated and decentralised which means that no central bank either guarantees them or controls their supply.

Throughout Revenue’s updated document the term “crypto-asset” is used, which includes cryptocurrencies, crypto-assets, virtual currencies, digital money or any variations of these terms.  Revenue state that the information contained in their most updated guidance is for tax purposes only.

Under Section TCA97 Ch4 s71–5, an individual who is resident in Ireland but not Irish domiciled is liable to Irish income tax in full on his/her/their income arising in Ireland, and on “non-Irish income” only to the extent that it is remitted to Ireland.

This is known as the remittance basis of taxation.

It’s important to keep in mind that the remittance basis of taxation does not apply to income from an office or employment where that income relates to the performance of the duties of that office or employment which are carried out in Ireland.

Section 29 TCA 1997 is the charging section for Capital Gains Tax.

s29(2) TCA 1997 states that a person who is Irish resident or ordinarily resident and is Irish domiciled is chargeable to Irish CGT on gains on all disposals (on his/her/their worldwide assets) arising in the year of assessment regardless of whether the gains are remitted to Ireland or not.

s29(4) TCA 1997 states that an individual who is Irish resident, or ordinarily resident,  but not Irish domiciled is chargeable on gains arising on disposals of Irish assets in the year of assessment as well as on remittances to Ireland in the year of assessment in respect of gains on the disposals of foreign assets.  In other words, an Irish resident/ordinarily resident but non domiciled individual is liable to Irish CGT on remittances in respect of gains arising on the disposal of assets situated outside the state.

From professional experience, the location of the crypto asset is often difficult to prove.

According to Revenue’s most recent publication:

“… where a crypto-asset exists ‘on the cloud’, it will not actually be situated anywhere and therefore, cannot be
viewed as ‘situated outside the State’.”

If the crypto-asset isn’t located anywhere and isn’t, therefore, considered to be a “disposal of an asset outside the state” then the remittance basis of taxation does not apply and the gain arising will be liable to Irish Capital Gains Tax based on the residency rules of the individual.

As you can see, it is very much the responsibility of the taxpayer to be able to prove the location where the gain arose on the disposal of the crypto-assets.

Revenue have outlined their record keeping provisions in relation to all taxes as follows: https://www.revenue.ie/en/starting-a-business/starting-a-business/keeping-records.aspx

In situations where the records are stored in a wallet or vault on any device including a personal computer, mobile phone, tablet or similar device, please be aware that these records must be made available to Revenue, if requested.

As with all taxes, full and complete records must be retained for six years in accordance with legislation. It is important to keep in mind that these provisions apply to all taxpayers, including PAYE only taxpayers.

For further information, please follow the link: https://www.revenue.ie/en/tax-professionals/tdm/income-tax-capital-gains-tax-corporation-tax/part-02/02-01-03.pdf

Today, 14th April 2022. the Irish Revenue published guidance (Revenue eBrief No. 090/22) on the tax treatments of Ukrainians, who continue to be employed by their Ukrainian employer while they perform the duties of their employment, remotely, in Ireland.

The Guidance material outlines a number of concessions which will apply for the 2022 tax year.

PAYE

As you’re aware, income earned from a non-Irish employment, where the performance of those duties is carried out in Ireland, is liable to Irish payroll taxes irrespective of the employee’s or employer’s tax residence status. However, by concession, the Irish Revenue are prepared to treat Irish-based employees of Ukrainian employers as not being liable to Irish Income Tax and USC in respect of Ukrainian employment income that is attributable to the performance of duties in Ireland.

Ukrainian Employers will not be required to register as employers in Ireland and operate Irish payroll taxes in respect of such income.

Please be aware that this concession only relates to employment income which is (a) paid to an Irish-based employee (b) by their Ukrainian employer.

In order for the above concessions to apply, two conditions must be met:

1. The employee would have performed his/her/their employment duties in Ukraine but for the war there and
2. the employee remains subject to Ukrainian income tax on his/her/their employment income for the year.

Corporation Tax

The Irish Revenue will disregard for Corporation Tax purposes any employee, director, service provider or agent who has come to Ireland because of the war in Ukraine and whose presence here has unavoidably been extended as a result of the war in Ukraine.

Again, such concessionary treatment only applies in circumstances where the relevant person would have been present in Ukraine but for the war there.

For any individual or relevant entity availing of the concessional tax treatment, it is essential that he/she/they retain any documents or other evidence, including records with the individual’s arrival date in Ireland, which clearly shows that the individual’s presence in Ireland and the reason the duties of employment are carried out in the state is due to the war in Ukraine.  These records must be retained by the relevant individual or entity as Revenue may request such evidence.

For further information, please follow link: https://www.revenue.ie/en/tax-professionals/ebrief/2022/no-0902022.aspx

Section 18 of the Finance Bill 2021 brings non Irish resident companies, in receipt of Irish rental income, within the charge to Corporation tax. Previously these companies were liable to income tax on their Irish rental profits.

Prior to the Finance Act 2021 amendment, non Irish resident companies, where no Irish branch existed, were liable to income tax at 20% on their rental income while Irish tax resident companies were, instead, liable to corporation tax at 25% on their rental income.

In circumstances where non-resident companies dispose of assets which had previously generated Irish rental income, any chargeable gains are now within the charge to corporation tax at 33% as opposed to capital gains tax, which is also at 33%. In other words, this amendment does not give rise to any additional tax as the effective rate of tax is 33% but the Corporate Tax rules now apply as opposed to the Capital Gains Tax rules.

There are no restrictions on the carry forward of rental losses and capital allowances in the change from the income tax regime to the corporation tax rules.

The payment date for certain affected companies’ preliminary corporation tax for 2022 has been adjusted. Those companies whose accounting period ends between 1st January 2022 and 30th June 2022 have until 23^rd June 2022 to pay preliminary corporation tax in a further measure to ease the transition from the Income Tax to the Corporation Tax regime.

From today, non-resident corporate landlords will now also be subject to the new interest limitation rules which have been introduced to comply with the EU’s Anti-Tax Avoidance Directives. These new rules link the taxpayer’s allowable net borrowing/financing/leverage costs directly to its level of earnings.  The ILR does this by limiting the maximum tax deduction for net borrowing costs to 30% of Tax EBITDA.  In other words, the ILR will cap deductions for net borrowing costs at 30% of a corporate taxpayer’s earnings before interest, tax, depreciation, and amortisation, as measured under tax principles.

On 12th October 2021 the Irish Government announced the introduction of a Digital Games Tax Credit, i.e. a refundable Corporation Tax Credit available to digital games development companies.

On 21^st October, Section 33 of the Finance Bill introduced section 481A TCA 1997 in relation to the new tax credit for the digital gaming sector which provides relief at a rate of 32% of the qualifying expenditure incurred in the development of digital games (i.e. the design, production and testing of a digital game) up to €25 million.

In other words, the credit of 32% will be on the lower of:

1. 80% of the qualifying expenditure per project or
2. €25 million per project

In order to qualify for the relief, the minimum expenditure per project is €100,000.

The digital gaming corporation tax credit will be available up to 31st December 2025.  

This tax credit is available to companies who are resident in Ireland, or who are EEA resident and operate in Ireland through a branch or an agency.

To qualify for this tax credit, the digital game must be issued with one of two types of Certificate from the Minister for Tourism, Culture, Arts, Gaeltacht, Sport and Media:

1. An interim certificate which is issued to companies who are in the process of developing their game or
2. A final certificate which is issued to companies who have completed the development of their game.

A digital games development company may not make a claim for the tax credit unless it has been issued with either an interim or a final certificate.

If a company has been issued with an interim certificate, it can claim the tax credit within twelve months of the end of the accounting period in which the qualifying expenditure is incurred.

Relief will not be available for digital games produced mainly for the purposes of advertising or gambling.

A digital game development company will be required to sign an undertaking in respect of “quality employment” which is similar to the requirements contained in section 481 TCA 1997 for tax relief for investment in films.

A claimant company will not be allowed to qualify for any additional tax relief under Section 481 Film Relief or the R&D tax credit.

As the credit will require EU state aid approval, it is to be introduced subject to a commencement order.

Revenue published Tax and Duty Manual Part 29-02-03 – Research and Development (R&D) Tax Credit today.

These updated guidelines clarify Revenue’s treatment of rental expenditure as well as including information on the treatment of subsidies received under (i) the Temporary Wage Subsidy Scheme (TWSS) and (ii) the Employment Wage Subsidy Scheme (EWSS).

According to previous guidance material on this matter issued on 1st July 2020 Revenue’s position was that “rent is expenditure on a building or structure and is excluded from being expenditure on research and development by section 766(1)(a) TCA 1997”.

Since then, Revenue’s position has been the source of continuous discussion and debate with many disagreeing with Revenue’s interpretation of the treatment of rent in relation to R&D claims.

Clarity had been sought from Revenue with regards to their position on rent in relation to both historic and new claims for Research and Development tax relief.

In this latest update, Revenue has clarified that rent will qualify in such circumstances where “the expenditure is incurred wholly and exclusively in the carrying on of the R&D activities.”

According to Paragraph 4.2 of the updated Revenue Guidance Manual:

“In many cases expenditure incurred on renting a space or facility, which is used by a company to carry on an R&D activity, may be expenditure that is incurred “for the purposes of”, or “in connection with”, the R&D activity but will not constitute expenditure incurred wholly and exclusively in the carrying on of the R&D activity. The eligibility of rental expenditure incurred by a company will relate to the extent to which it is incurred wholly and exclusively in the carrying on of the R&D activities. Where the nature of the rented space or facility is such that it is integral to the carrying on of the R&D activity itself then it is likely that the rent can be shown to be more than merely “for the purposes of” or “in connection with” the R&D activity.”

Therefore, it is possible for rental expenditure to be included as part of an R&D tax relief claim but only where that rented building is deemed to be integral to the carrying on of R&D activities.  According to Revenue’s guidance material, an example of a rental expense that may be considered qualifying expenditure might relate to the rental of a specialized laboratory used solely for the purposes of carrying out R&D activities. This is contrasted with the rental of office space necessary to house an R&D team, but which is not deemed to be integral to the actual R&D activity.  In this case, this rent would not be treated as eligible expenditure.

Revenue have confirmed that this position will only apply for accounting periods commencing on or after 1st July 2020. 

Revenue’s Manual has also been updated to include:

• Confirmation that the EWSS and TWSS are considered State support and therefore expenditure from such assistance will not qualify for relief.  In other words, such amounts will reduce the qualifying allowable expenditure or qualifying R&D tax relief expenditure.
• The COVID-19 practice for 2020, in relation to the use of a building in a ‘specified relevant period’ under section 766A TCA 1997.
• A further example of a subcontractor who would not be eligible to claim the R&D tax credit.

For further information, please follow the link: https://www.revenue.ie/en/tax-professionals/tdm/income-tax-capital-gains-tax-corporation-tax/part-29/29-02-03.pdf