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Today the Irish Revenue Commissioners published eBrief No. 197/22 in relation to emergency accommodation and ancillary services.  For full information, please click: https://www.revenue.ie/en/tax-professionals/tdm/value-added-tax/part03-taxable-transactions-goods-ica-services/Services/services-emergency-accommodation-and-ancillary-services.pdf

If you are providing Emergency Accommodation it is essential for you to consider the VAT implications.

The most important points are as follows:

• The use of State owned property for emergency accommodation is outside the scope of VAT.

• The supply of emergency accommodation in all/part of a house, apartment, bedsit or other similar establishment is exempt from VAT.

• Accommodation in a hotel or guesthouse which is contracted to a State agency is considered to be an exempt supply of emergency accommodation provided the following two conditions are met: (i) it is provided exclusively as emergency accommodation and (ii) it must not available to the general public as guest or hotel accommodation.

• The supply of accommodation in direct provision centres is also exempt from VAT as a supply of emergency accommodation.

• Ancillary supplies relating to the supply of emergency accommodation will be treated as exempt from VAT. These include laundry, security, reception and administration services.

• The Revenue Commissioners do not consider catering services to be ancillary to the supply of emergency accommodation. Therefore, catering services are liable to VAT at the appropriate VAT rate once the turnover from catering services exceeds, or is likely to exceed, €37,500 in any twelve month period.

• Where there is a supply of emergency accommodation and catering services, the consideration payable must be apportioned between (a) the exempt emergency accommodation service and (b) the taxable catering service. This will ensure that the correct amount of VAT is calculated on the taxable supplies.  It is also important for accurately computing VAT deductibility on costs.

• The business overheads should be apportioned between (i) taxable and (ii) exempt business activities. The VAT on costs associated with the exempt supply of emergency accommodation and ancillary services cannot be recovered. The VAT incurred on the costs of providing taxable catering services, however, are deductible in full.

• If the person providing the accommodation has waived their exemption from VAT in relation to residential property acquired before 2^nd April 2007 (i.e. apartments, houses, etc.) which are now used for the purposes of emergency accommodation then VAT at 23% (i.e. the current standard rate) will apply to such supplies.

• For residential properties including houses, apartments, etc, that have already been used for VAT exempt residential lettings, no Capital Goods Scheme adjustment will arise if the property is then used as emergency accommodation. The reason being that the property was already used for VAT exempt purposes.

• If, however, a property previously providing taxable supplies of hotel and guest accommodation is used for emergency accommodation, a Capital Good Scheme adjustment will be triggered. This could have serious VAT implications for the property owner (i.e. the holder of the capital good).

• For detailed information on the operation of the Capital Good Scheme, please click link: https://www.revenue.ie/en/tax-professionals/tdm/value-added-tax/part11-immovable-goods/capital-goods-scheme/capital-goods-scheme.pdf

If you require further information on VAT issues, please contact us to make an appointment.

The publication of Draft Residential Zoned Land Tax Maps by local authorities was announced today by the Minister for Finance, Paschal Donohoe T.D. and the Minister for Housing, Local Government and Heritage, Darragh O’Brien T.D.

Landowners have until 1st January 2023 to make a submission to the relevant local authority as to whether or not their land, on the map, satisfies the criteria to be liable to the tax.

This is part of the implementation of the Residential Zoned Land Tax (RZLT).

What is RZLT?

As you may remember, Residential Zoned Land Tax (RZLT) was introduced by Finance Act 2021 as part of the Government’s ‘Housing for All – a New Housing Plan for Ireland’.

Land within the scope of RZLT will be liable to an annual 3% tax based on its market value from 1^st January 2024 onwards.

RZLT will apply to land that on, or after, 1^st January 2022, is:

1. zoned for residential use and
2. serviced

In other words, where the land is zoned as suitable for residential development and serviced after 1^st January 2022, tax will be first due in the third year after it comes within scope.

The primary objective of RZLT is activate land for residential development and not to increase the Government’s tax revenue.

It will operate on a self-assessment basis, which places the filing and payments obligations on the landowners.  You must retain detailed records to enable the Revenue Commissioners to verify the correct amount of RZLT due and payable.

What should you do?

If you own land liable to RZLT, you must register for the tax.

You will be able to register for RZLT from late 2023.

You will be required to file an annual return to Revenue and pay any liability on or before 23rd May of each year, beginning in 2024.

Please be aware that interest, penalties and surcharges will apply in relation to cases of non-compliance, for example:

• in relation to undervaluation of land
• the late filing of returns.

Exclusions.

There are a number of exclusions from RZLT.

Certain properties are excluded from RZLT such as existing residential properties.

Homeowners will not have to pay the RZLT if they own a dwelling which appears on the local authorities’ RZLT Maps, and this property is subject to Local Property Tax (LPT).  In other words, residential properties liable for Local Property Tax (LPT) are not subject to RZLT.

If, however, your garden/yard/land is greater than 0.4047 hectares (one acre) then you must register for RZLT.

No RZLT, however, is payable by owners of these properties.

Summary:

• Registration is available from late 2023.
• Each local authority will publish a Final RZLT Map by 1st December 2023 indicating what lands are subject to the RZLT.
• The RZLT will first fall due on 1st February 2024.
• The pay and file date will be 23^rd May 2024.
• If a homeowner owns such a dwelling and the land/gardens/yards attached to it are greater than 0.4047 hectares (1 acre), they will be required to register for the RZLT with the Revenue Commissioners but will not be liable to pay the tax.

For full information, please click:

https://www.gov.ie/en/publication/fbad0-residential-zoned-land-tax/?_cldee=pGqqP87nFB2cRDW2HeolsCPXUpzM4oJGbkS0FTFnkfAOidPYtjzIqfeGfW2_3PSo&recipientid=contact-7f5d2b33fbf9e71180fb3863bb358f88-0837673b37e04a398fdd86a896db4181&esid=1f53b22f-5a5c-ed11-9562-6045bd90529b

https://www.revenue.ie/en/tax-professionals/tdm/income-tax-capital-gains-tax-corporation-tax/part-22a/22a-01-01.pdf

https://www.revenue.ie/en/property/residential-zoned-land/due-date-excluded-properties.aspx

The Revenue Commissioners published a new Code of Practice for Revenue Compliance Interventions today which will be effective from 1^st May 2022 and will apply to all compliance interventions notified on/after that date.  The revised Code applies to all taxes and duties, with the exception of Customs.

The revised Code reflects Revenue’s new Compliance Intervention Framework and the key changes include:

1. A three tier designation of Revenue Interventions and

2. The introduction of Risk Review categories of Intervention.

Level 1

Level 1 Interventions are aimed at assisting taxpayers to bring their tax affairs in order voluntarily.  They are designed to support compliance by reminding taxpayers of their obligations. They also provide them with the opportunity to correct errors without the need for a more in-depth Revenue intervention. These include the following:

1. Self-reviews

2. Profile interviews

3. Bulk issue non-filer reminders

4. Actions that fall under the Co-operative Compliance Framework.

The expected outcomes of Level 1 Interventions:

1. Liability under relevant tax head(s).

2. Statutory Interest

3. Reduced penalties. In situations where self correction is an option, no penalties should arise.

4. No Prosecution.

5. No Publication.

In Summary:

• Level 1 interventions can only occur where the Revenue Commissioners have not already engaged in any detailed examination, review, audit or investigation of the matters under consideration.

• Examples include VAT verification check letters requesting backup documentation to support refund claims, reminder notifications in relation to outstanding tax returns, questionnaires for R&D Tax Credit claims, requests to self-review on specific issues, etc.

• A Level 1 Intervention allows for an unprompted qualifying disclosure.

• Unprompted qualifying disclosures cannot be made at any level other than Level 1.

• The definition of a Profile Interview has changed in the new Code. A Profile Interview will now be used by Revenue to familiarise itself with a specific taxpayer.  Previously it was used to assess a set of taxpayer risks to ascertain whether or not a Revenue audit was required.

• If the Revenue Commissioners identify a compliance risk during a Profile Interview, they may initiate a Level 2 or Level 3 intervention.

• A Level 1 Compliance Intervention allows for (i) self corrections and (ii) unprompted qualifying disclosure.

• When making an unprompted qualifying disclosure, it is essential to disclose the tax defaults for the tax heads and the tax periods which are the subject of the disclosure. To be completely compliant, the taxpayer must also include all previously undisclosed tax defaults in the ‘deliberate default’ category under any tax head and/or any tax period.

Important Change

According to the new Code, self-corrections can continue to be made the taxpayer is within the relevant time limits

From 1^st May 2022 any such self-corrections must be made in writing.

The submission of an amended return on ROS will no be longer sufficient to qualify as a written notification.

Therefore, to qualify as a self correction, a written notification must be provided as well as any amendment made on ROS.

Level 2

One of the more fundamental changes to the revised Code is the introduction of the ‘Risk Review’ as a Level 2 Intervention. Level 2 interventions are used by Revenue to confront compliance risks ranging from the examination of a single issue within a Tax Return to a full and comprehensive Revenue Audit.  An ‘unprompted qualifying disclosure’ will not be available to a taxpayer who receives notification of a Risk Review in respect of the specified tax head and tax period.  Taxpayers will, however, have the option to make a prompted qualifying disclosure when notified of a Level 2 intervention.

There are two types of Level 2 Interventions:

1. Risk Reviews

2. Audits

Level 2 Interventions – Risk Review

• A Risk Review is generally a desk based intervention which focuses on a particular issue or issues contained in a tax return or a risk identified by Revenue’s own system.

• Unlike level 1 interventions, there is no option for a taxpayer to make a self-correction or an unpromoted qualifying disclosure once they have been notified of a level 2 compliance intervention.

• A written notification will be issued to the taxpayer.

• The notice will specify the scope of the tax review, outlining which information is to be provided within a twenty eight day period.

• The notification will also clarify whether the intervention is a risk review or an audit.

• The review will take place twenty eight days from the date of the notification.

• Generally, Risk Reviews will be carried out by correspondence.

• Taxpayers will have twenty one days in which to notify Revenue if they intend to make a prompted qualifying disclosure.

• A prompted qualifying disclosure can be made within twenty eight days of a notification of a level 2 intervention, with the possibility of requesting an additional sixty days.

• In circumstances where a prompted qualifying disclosure is made, it must be made along with the relevant tax and statutory interest paid, before the expiry of the twenty eight day period.

• The prompted qualifying disclosure must include all underpayments in respect of that particular tax head for the period in question and not just the particular issue which is the subject of the Risk Review. If the taxpayer fails to disclose any underpayments at this point then it is likely that higher penalties could ensue along with an increased risk of publication on Revenue’s Tax Defaulters List.

• A prompted qualifying disclosure may allow the taxpayer the opportunity to mitigate penalties, avoid prosecution and/or avoid publication on the tax defaulters’ list.

• Failure to respond to the Risk Review Notification may result in an on-site visit by Revenue or a full Revenue Audit.

Level 2 Interventions – Revenue Audit

A “Revenue Audit” is an examination of the compliance of a taxpayer.  It focuses on the accuracy of specific tax returns, statements, claims, declarations, etc. Broadly speaking, the operation of a Revenue Audit will remain the same under the revised Code.  An audit will be initiated where there is a greater level of perceived risk.  Also, please keep in mind that an audit may be extended to include additional tax risks depending on information discovered by Revenue during the audit process.

The main stages in a typical Revenue audit are unchanged under the new Code and can be summarised as follows:

1. The taxpayer receives a Notification Letter which confirms the type of compliance intervention to be undertaken as well as the tax head(s) and period(s) covered. The notice also contains the audit commencement date and location in addition to the books and records to be made available for inspection.

2. The audit will commence twenty eight days after the date of the notification.

3. It is possible for businesses to request an alternative date in circumstances where the commencement date is not feasible for them.

4. A pre-audit meeting can be carried out, where necessary, to ascertain the nature and availability of electronic records.

5. It is possible to make a prompted qualifying disclosure before the start of the Audit. In order to make such a disclosure, tax and statutory interest must be paid in full.  A penalty does not need to be included.  The taxpayer must sign a declaration that the disclosure is complete and correct.

6. Taxpayers may request an additional sixty days in order to prepare a prompted qualifying disclosure. This must be done within twenty one days of the date of the Audit Notification.

7. Opening meeting – At the start of this meeting, the Auditor explains the purpose of the audit and indicates how long it should take. At this point, the Taxpayer has the opportunity to make a prompted qualifying disclosure.  This meeting provides the taxpayer with the opportunity to demonstrate to Revenue the tax controls in place. The Revenue auditor will examine the books and records as well as the prompted qualifying disclosure, raise queries and interview the taxpayer.  The information and explanations provided by the taxpayer will define the focus areas of the audit as well as influencing its outcome.

8. Revenue will meet the Taxpayer to outline the audit findings.

9. If the tax return is correct, the taxpayer will be informed as soon as there is certainty. If, however, the return requires amendment, the Auditor will discuss this with the Taxpayer and provide written clarification.

10. At the close of the audit there will be a final meeting to agree on the total settlement when the taxpayer should pay the required amount to the Auditor.

11. Following on from the audit, assessments may be raised or actions carried out to recover additional or disputed tax liabilities, where necessary.

Level 3 Intervention

Level 3 interventions take the form of investigations. These would generally be focused on suspected tax fraud and evasion.  A ‘Revenue Investigation’ is an examination of a taxpayer’s affairs where Revenue believes that serious tax or duty evasion may have occurred.  As the Revenue investigation may lead to a criminal prosecution, it is always recommended to seek expert professional advice and assistance in such situations.

A taxpayer is not entitled to make a qualifying disclosure from the date of commencement of the investigation, however, a taxpayer can seek to mitigate penalties by cooperating fully with a level 3 intervention.

Taxpayers will generally be notified of a Level 3 intervention in writing.  However, in certain cases Revenue may carry out an unannounced visit or may carry out investigations without notifying the taxpayer in writing.

Just to reiterate, once an investigation is initiated, the taxpayer cannot make a qualifying disclosure in relation to the matters under investigation.

FINAL POINTS

The main changes in the new Code of Practice for Revenue Compliance Interventions are:

1. The new Risk Review which is classed in the same category as a Revenue Audit. Once a taxpayer is notified of a Risk Review, the option of making an unprompted qualifying disclosure is removed.  This means the taxpayer will be subject to increased penalties and possible publication on the Revenue’s Tax Defaulters’ list.

2. A Risk Review generally requires clarification of a specific tax related issue, however, in order for a prompted disclosure to qualify, the disclosure must cover all tax defaults in relation to that particular tax head and the period(s) outlined in the notification. If, however, the default is considered to be in the deliberate default category, the disclosure must cover all tax heads and all tax periods.

3. There is a 28 day period between the date of the Notification and the commencement of the Risk Review or Audit.

4. Under the new Code, where the tax underpayment or an incorrectly claimed refund is less than €50,000, publication on the Revenue’s Tax Defaulters’ list will not arise. This increased threshold relates to the tax liability only and does not include interest and/or penalties.

5. Under the new Code, the exclusion from mitigation of penalties in relation to disclosures pertaining to offshore matters has been removed. This means the taxpayer can now include tax defaults relating to offshore matters in qualifying disclosures and benefit from mitigated penalties.

For full information, please click: https://www.revenue.ie/en/tax-professionals/documents/code-of-practice-revenue-compliance-interventions.pdf

To book an appointment to discuss any Revenue correspondence you may have received in relation to a Level 1, Level 2 or Level 3 Intervention, please email us at queries@accountsadvicecentre.ie

Nestlé has lost its appeal against the original 2016 ruling by the UK’s First Tier Tribunal over the VAT treatment that should apply to its strawberry and banana flavoured Nesquik powders.

The First Tier Tribunal found in favour of the HMRC not repaying the £4 million of output VAT which had been over declared by Nestlé on these products.  Nestlé’s grounds for seeking this repayment were that the fruit flavoured powders were liable to the zero VAT rate as they were deemed to be “a powder for the preparation of beverages.”

The Tribunal held in favour of the HMRC that the products in question should remain at the standard VAT rate and as a result, no claim for the over declared output VAT is to be allowed.

Nestlé argued that strawberry and banana Nesquik should be zero rated. The reason being that they encourage milk drinking and milk is zero rated.

Nestlé also argued that these flavours should have the same VAT treatment as the chocolate flavour powder because they are in essence, the same product.

Both Nestlé and the HMRC agree that the chocolate flavoured Nesquik should be zero rated on the basis that this product contains cocoa thereby allowing it to fall within the list of “exceptions to the excepted items” according to the UK’s zero rating provisions.

The Upper Tribunal pointed out that there are number of other anomalies within the VAT system. For example, the fact fruit salad is zero rated while fruit smoothies are liable to VAT at the standard rate.

This case is likely to be appealed by Nestlé.

The lesson to be learnt from this case is that advice should always be sought in advance, especially with regard to new supplies, to ensure that the correct VAT treatment is always applied.

The full ruling can be found here:

 Nestlé UK Ltd and the Commissioners for Her Majesty’s Revenue and Customs, [2018] UKUT 29, Appeal number: UT/2016/120 

Image courtesy of tiverylucky at FreeDigitalPhotos.net

A stamp duty refund scheme in respect of land purchased to develop residential property was signed into the 2017 Finance Act on 25^th December 2017.

The Act provides that where stamp duty, at the new higher rate of 6%. is paid on the acquisition of land which is subsequently used to build residential property, the purchaser will be entitled to a rebate of 4% being 2/3rds of the duty paid.

It is important to keep in mind that the refund of stamp duty is only applicable in relation to the proportion of the land used for residential development.

The Main Points of the Scheme are:

• The scheme only applies where the residential development begins within thirty months of the date the land was acquired but before 1^st January 2022.

• It only applies to the construction of dwelling units.

• It does not apply to the refurbishment or completion of existing or partially constructed units.

• The time taken to conclude any planning appeal may be added to this 30 month period.

• The development must commence on foot of a Commencement Notice served in compliance with the Building Control Regulations and must be completed within two years of the relevant Local Authority’s acknowledgement of the Commencement Notice.

• There is a four year time limit on claiming a repayment.  Please be aware that the repayment does not carry interest and must be claimed using Revenue’s e-Stamping system.

• The 4% duty refund can be claimed following the commencement of the works

• Where the residential development is being carried out in phases, repayments can be sought on a phased basis i.e. the refund can be reclaimed on the commencement of each phase but only in proportion to the area of the land in each phase.

•  75% of the land, for which the refund claim is made, must comprise of dwelling units.

• If the legislative conditions are not met or if the works have not been completed within the 2 year deadline then Clawback Provisions will apply to this refund.

Despite the fact that this scheme has been signed into legislation there are still areas of uncertainty.  It is expected that Revenue will issue guidance material to clarify matters in due course.

As you are aware, Finance Act 2017 increased the rate of stamp duty on the transfer of non-residential property from 2% to 6% with effect from midnight on Budget Day.

The change applied to instruments executed on or after 11^th October 2017.

This dramatic increase will, most likely, reduce the number of commercial property transactions carried out in Ireland in 2018.

On 27^th October 2017, The Irish Revenue Commissioners published Revenue eBrief No. 94/2017 outlining the transactions eligible for the 2% Stamp Duty rate under Transitional Relief Measures:

In circumstances where a binding contract has been entered into before 11^th October 2017 the rate of stamp duty will remain at 2%, provided the following two conditions are met:

1. the instrument was executed before 1^st January 2018, and

1. the instrument contained certification that the instrument was executed on foot of a binding contract entered into before 11^th October 2017.

A person who filed a stamp duty return before the enactment of the Finance Bill and who was satisfied that the transitional measures would have applied if the Finance Bill had been enacted, had two options:

1. To file a return through the e-stamping system, pay stamp duty of 6% and be issued with a stamp certificate.  Now that the Finance Act has been enacted the filer can amend the Return, submit the relevant documents to Revenue thereby requesting a refund of 4% (i.e. the difference between the 6% and 2% rate). Please follow attached link for detailed instructions:

 https://www.revenue.ie/en/online-services/support/documents/help-guides/stamp-duty/amending-stamp-duty-return-on-ros.pdf or

2. To file a return through the e-stamping system and pay the stamp duty at the lower rate of 2%.  In this situation a stamp certificate was not be issued at this stage.

On 4^th January Revenue published guidelines on how this postponed stamp certificate can be obtained. To receive the certificate, you must amend the Stamp Duty Return by following the link:

https://www.revenue.ie/en/online-services/support/documents/help-guides/stamp-duty/amending-stamp-duty-return-on-ros.pdf

For those who filed their Returns but did not pay the correct amount of Stamp Duty at the 2% rate, you will not have received a Stamp Certificate.

In order to obtain the stamp certificate you must amend the Stamp Duty Return, pay the Stamp Duty of 2%, pay any Interest accruing on the late payment of Stamp Duty and pay any surcharge arising on the late filing of the Return, if relevant.

Once the payments have been processed your Stamp Certificate will issue automatically.

The Minister for Finance, Public Expenditure and Reform Paschal Donohoe T.D delivered his first Budget today, on 10^th October 2017, which concentrated more on expenditure than on tax changes.

The Minister announced a number of positive measures to assist small and medium sized enterprises prepare for “Brexit” as well as confirming Ireland’s commitment to the 12½% corporation tax rate.

We are pleased to bring you our summary of the tax measures set out in Budget 2018.

PERSONAL TAXATION

Universal Social Charge

The USC has been cut for lower and middle income earners.

The 2.5% USC rate has been reduced by 0.5% to 2% and the band has been increased to €19,372 from €18,772 which will benefit employees earning the minimum wage.

The 5% USC rate has been reduced by 0.25% to 4.75%

Medical card holders and individuals aged 70 years and over whose combined income does not exceed €60,000 per annum will only be liable to pay a maximum USC rate of 2%.

For self-employed individuals with income of over €100,000 the 11% rate will continue to apply

Income Tax

The higher or marginal tax rate will remain at 40% for 2018.

The income tax standard rate band, however, will be increased by €750 to €34,550 i.e. the entry point at which the 40% income tax rate applies has been increased from €33,800 to €34,550 for a single person and from €42,800 to €43,550 for married couples with one income.

The marginal rate of tax for individuals earning between €34,551 and €70,044 will be 48.75%.

The marginal rate of tax for individuals earning in excess of €70,044 will remain at 52% for employees.

The marginal rate of tax for self-employed individuals earning in excess of €100,000 will remain at 55%.

Earned Income Credit

For self-employed individuals, the earned income tax credit will increase by €200 to €1,150.

No reference was made in today’s Budget speech as to when future increases to this tax credit would arise to bring it in line with the PAYE Tax Credit of €1,650.

Home Carer Tax Credit

The Home Carer Tax Credit will increase by €100 from €1,100 to €1,200.

The €7,200 income threshold remains

This tax credit can be claimed by a jointly-assessed couple where a spouse/civil partner cares for one or more dependents regardless of the number of individuals cared for.

Deposit Interest Retention Tax (DIRT)

The rate for Deposit Interest Retention Tax for 2018 will be charged at 37%.

PRSI

The National Training Fund Levy will be increased over the next three years and will apply to employees under Classes A and H by increasing Employer’s PRSI as follows:

a)      10.85% in 2018

b)      10.95% in 2019

c)      11.05% in 2020

Mortgage interest relief 

Mortgage Interest Relief for residential property owners which was scheduled to be abolished from the end of this year will continue until 2020.

This relates to home owners who took out qualifying mortgages between 2004 and 2012.

The relief will be reduced as follows:

a)      to 75% in 2018

b)      to 50% in 2019

c)      to 25% in 2020

Following a change in last year’s Finance Act, the amount of mortgage interest allowable against taxable rental income will increase to 85% with effect from 1^st January 2018.  However, there was no reference, in today’s Budget speech, to the expected increase from 80% to 85% mortgage interest relief on rented residential property.

As you may remember, in Budget 2017, it had been announced that100% mortgage interest relief for rental properties would be restored on a phased basis by 2020.

 Deductibility of pre-letting expenses

Expenses incurred prior to the first letting of a property are not deductible against rental income, with a few exceptions.

Following today’s Budget, property owners who rent out residential properties which have been vacant for a period of twelve months or more will be entitled to a tax deduction of up to €5,000 per property.

These expenses must be revenue in nature and not capital expenditure.

The relief will be subject to a clawback of the property is withdrawn from the rental market within a four year period.

This relief will be available for qualifying expenditure between now and the end of 2021.

Benefit-in-kind on motor vehicles

The minister announced a number of measures to incentivise the purchase of electric cars including:

a)      a 0% rate of Benefit-in-Kind for electric cars and the electricity used at to charge these vehicles while at work.

b)      a VRT Relief measure

CAPITAL ACQUISITIONS TAX

No changes were announced to the CAT tax-free thresholds in the Budget.

CAPITAL GAINS TAX

No changes were announced to CGT rates in the Budget.

Seven Year Exemption

The Minister relaxed the “Seven Year Exemption” which applied to land or buildings purchased between 7^th December and 31^st December 2014.

Disposals of qualifying assets between years four and seven will now qualify for the full Capital Gains Tax Exemption

VAT

VAT Compensation Scheme

A VAT refund scheme was introduced in order to compensate charities for input VAT incurred on expenditure.

This scheme will take effect from 1^st January 2018 but will be paid one year in arrears. In other words charities will be entitled to claim an input VAT credit in 2019 in relation to expenses incurred in 2018.

Charities will be entitled to a refund of a proportion of their VAT costs based on the level of non-public funding they receive.

The Minister also confirmed that a capped fund of €5 million will be available to fund the scheme in 2019.

For further information please visit:

http://www.budget.gov.ie/Budgets/2018/Documents/VAT_Compensation_Scheme_For_Charities.pdf

9% VAT Rate

The reduced VAT rate of 9% for goods and services, mainly related to the tourism and hospitality industry, has been retained.

VAT on Sunbed Sessions

 In line with the Irish Government’s National Cancer Strategy, the VAT rate on sunbed services will increase from 13.5% to 23% from 1^st January 2018.

BUSINESS TAXES

Corporation tax rate

The government has made a firm commitment to retaining the 12½% Corporation Tax rate to attract foreign direct investment.

 Capital Allowances for Intangible Assets

The Minister confirmed that he would be limiting the amount of capital allowances that can be claimed for intangible assets.

A tax deduction for capital allowances under Section 291A TCA 1997 on intangible assets and any associated interest cost will now be limited to 80% of the relevant income arising from the intangible asset in the accounting period from midnight of 10^th October 2017.

Key Employee Engagement Programme (KEEP)

The Minister announced plans for a new share based remuneration incentive for unquoted SME companies aimed at improving the ability of SMEs to attract and retain key staff.

This incentive will be available for qualifying KEEP share options granted between 1^st January 2018 and 31^st December 2023.

No income tax, PRSI or USC will be charged on the exercise of the share options. Instead gains from exercising these share options will only be liable to CGT @ 33%.

The tax becomes payable when the shares are sold.

State Aid approval will be required to introduce this scheme.

Accelerated capital allowances for expenditure on energy-efficient equipment

Following a review of the accelerated capital allowances scheme for energy efficient equipment, the current scheme is being extended for a further three years to the end of 2020.

STAMP DUTY

Stamp Duty on commercial property

The rate of stamp duty on commercial property transactions will have increased from 2% to 6% with effect from midnight of 10^th October 2017.

A stamp duty refund scheme is also being introduced for commercial land acquired for the development of housing, on condition that the development must begin within 30 months of the purchase of the land.

It is expected that further details of the relief and the conditions will be outlined in the Finance Bill.

FARMING AND THE AGRI-SECTOR

Stamp duty

The Stamp duty rate of 1% remains for inter-family farm transfers for a further three years.

The Stamp Duty exemption for Young Trained Farmers on agricultural land transactions will also be retained.

Leasing land for solar panels

The leasing of agricultural land for the use of solar panels will continue to be classified as agricultural land for the purposes of the CAT Agricultural Relief and the CGT Retirement Relief providing the solar panel infrastructure does not exceed 50% of the total land holding..

BREXIT

Brexit Loan Scheme 

A new Brexit Loan Scheme has been announced. A loan scheme of up to €300 million will be available at competitive rates to SMEs to assist them with their short-term working capital needs, with particular attention given to food industry businesses.

Details of this scheme will be provided by the Tánaiste and Minister for Business, Enterprise and Innovation, and the Minister for Agriculture, Food and the Marine.

Plans were also announced to hire over 40 additional staff across the Department of Business, Enterprise and Innovation and enterprise agencies in 2018 to respond to the issues arising from Brexit.

Increased funding

The Minister announced increased funding of €64 million to support the agri-sector. Of this, a further €25 million is to be provided to the Minister for Agriculture, Food and the Marine to develop further Brexit loan schemes for the agri-food sector in addition to the loan scheme discussed above.

OTHER CHANGES

Sugar Tax

 From 1^st April 2018 two rates of tax on sugar-sweetened drinks will be introduced subject to State Aid approval.

The first will apply at a rate of 30 cent per litre where the sugar content is above 8g per 100ml.

The second rate of 20 cent per litre will apply where the sugar content is between 5g and 8g per 100ml.

Drinks with less than five grams of sugar won’t attract a sugar tax.

Vacant site levy

The vacant site levy has been increased from the current 3% levy in the first year to 7% in second and subsequent years to encourage land owners to develop vacant sites rather than “hoarding” land.

The vacant site levy is due to come into effect in 2018.

An owner of a property on a vacant site register who does not develop their land in 2018 will be liable to the 3% levy in 2019 and a further 7% levy in 2020 and each year thereafter until the land is developed.

From 1^st January 2017, each local authority is obliged to maintain a register of vacant sites to include on the register, details of any site, which they believe, has been vacant for the previous twelve month period.

What is Rental Income?

According to the Revenue’s website, Rental income includes:

• “the renting out of a house, flat, apartment, office or farmland.
• payments you receive for allowing advertising signs or communication transmitters to be put up on your property
• payments you receive for allowing a right of way through your property
• payments you receive for allowing sporting rights such as fishing or shooting rights on your property
• payments you receive from your tenant to cover the cost of work to your rental property. Your tenant must not be required to pay for this work per the lease
• certain lease premiums, as well as deemed and reverse premiums
• Conacre lettings
• service charges for services connected to the occupation of the property
• payments from insurance policies that cover against the non-payment of rent.”

What about Local Property Tax?

According to Revenue, LPT is not a deductible expense against rental income under Section 97 TCA 1997.

According to the Thornhill Group, for Income Tax and Corporation Tax purposes, Local Property Tax should be deductible in a similar manner to commercial rates.  Despite the fact that the Government has accepted this recommendation in principle no further details of when and how this deduction will take effect have been made available.

What is liable to Tax? 

The net profit arising from a rental property is taxed at an individual’s marginal rate of tax being Income Tax plus PRSI plus Universal Social Charge.

In other words, tax is charged on the gross rents receivable less a deduction for all allowable expenses.

It is important to remember that a profit or loss computation must be carried out for each source of rental income.

The rental income on which tax is levied equals the total rental profits less the total losses from all rental sources combined.

Deductions in arriving at net profit include:

• Rates,
• Management Fees,
• Repairs & Maintenance
• Ground Rents
• Certain Mortgage Protection Policy Premiums
• Insurance,
• Legal, Accountancy and Advertising Fees,
• The cost of services provided that weren’t repaid by the tenant including electricity, water charges, refuse charges, etc.
• Wear & Tear on Furniture and Fittings, etc.

A deduction is also available for interest on monies borrowed for the purchase, or repair of the rental property.

For rented residential property, the allowable mortgage interest relief is restricted to 75% for the 2016 year of assessment and is dependent on the landlord registering the tenancy with the Residential Tenancy Board.

For the 2017 tax year, the mortgage interest deduction has increased from 75% to 80%.

The deductible amount will be increased by 5% every year from then on so that by 2021 100% of the mortgage interest will be deductable against the rental income received from qualifying residential lettings.  In other words, the allowable rate will be 85% in 2018, 90% in 2019, 95% in 2020 and 100% in 2021.

The landlord may be able to claim 100% mortgage interest relief. To qualify he/she must:

a)       rent out the residential property for three years to tenants receiving certain social housing supports and

b)       be registered with the Private Residential Tenancies Board (RTB)

In situations where the rented residential property was purchased from the taxpayer’s spouse or civil partner, the interest will not be allowed as a deduction in computing the rental profits. This measure is aimed at preventing married couples and civil partners from generating interest by selling properties to each other and borrowing the necessary funds to do so.

How are Irish Rental Losses Treated?

In situations where a rental loss arises, it can be offset against the rental profit from another property.  If there are insufficient profits for offset then it can be carried forward against future rental profits only.

The order of offset is very important.  The landlord must use Capital Allowances first before offsetting the rental losses carried forward from an earlier year and it is not possible to carry rental losses back to a preceding tax year.

It is not possible to offset rental losses made by one spouse or civil partner against the rental profits of the other.

Losses arising from uneconomic rentals cannot be offset against other rental profits. Uneconomic rentals are defined as those where the expenses will always exceed the income of a particular rental source.

It is not possible to offset rental losses against income generated from other sources including salary, trade income, dividends, deposit interest, etc.

Please keep in mind that foreign rental losses can only be written off against foreign rental income.

What about Pre-Letting Expenses?

The general rule in tax legislation is that any expense incurred prior to the first letting of a rental property is not allowable. The reason being, that such expenses are not deemed to be expenses that relate to a particular lease.  Therefore expenses incurred on buying furniture, painting and decorating the property, etc. before the first letting by its current owner and before the first occupancy by the tenant will not be allowable deductions.

There are, however, two exceptions based on the decision in Stephen Court Limited v Brown (HC 198/2 No 293 S.S.):

a)       Advertising or marketing costs connected with the first rental of the property and

b)       The legal costs incurred in drawing up the first tenancy lease for the rental property.

What is Rent-a-Room Relief?

If an individual rents a room or rooms in his/her sole or main residence and the gross income received does not exceed €12,000 for the 2016 year of assessment or €14,000 for 2017 onwards then no Income Tax, Universal Social Charge or Pay Related Social Insurance will be payable by that individual. In other words, if the rental income does not exceed the annual exemption limit in the year of assessment then the profit or loss arising on the rent will be deemed to be NIL.

Included in the annual exemption limits are payments from the renter/tenant for food, laundry or similar goods and services.

Where the income exceeds €12,000 in 2016 or €14,000 in 2017, the entire amount is taxable.

In situations where more than one individual is entitled to the rent, the annual exemption limit is divided between all the individuals concerned.

It is important to keep in mind that this relief is only available to individuals. In other words it does not apply to companies or partnerships which rent out residential properties.

This relief is available for both individuals who rent as well as individuals who own their own home.

Claiming Rent-a-Room Relief will not affect an individual’s entitlement to mortgage interest relief or Principal Private Residence Relief on the disposal of his/her sole or main residence.

Income from Rent-a-Room must be included in an individual’s annual Tax Return under “Exempt Income.”

The Rent-a-Room Relief will not apply where a child pays rent to a parent.

The Rent-a-Room Exemption is not compulsory.  An individual may elect to have any rental profits or losses from this source assessed under the normal Case V Schedule D rules for rental income.

Filing a Tax Return

All individuals in receipt of rental income must declare this information in his/her annual tax return on or before 31^st October in the year following the year of assessment.

If the rental profit is less than €5,000 it can be declared through the Form 12.

If, on the other hand, the net rental income is over €5,000 the individual will be obliged to register for Income Tax and declare his/her rental income in a Form 11 under the self assessment rules.

Where the landlord is non-resident and in the absence of an Irish resident Agent, the tenant(s) should deduct tax from the rent at the standard rate and pay this tax over to Revenue.  The landlord will be entitled to a credit for the tax deducted by the tenant(s) and must file a Form R185 along with either a Form 11 or Form 12 depending on the amount of rental profit generated.

If, however, the landlord has engaged the services of a Tax Collection Agent in Ireland, this Irish resident individual will be responsible for filing the relevant tax return and submitting the appropriate tax payment on the landlord’s behalf.

image courtesy of mapichai @ freedigital photos 

OVERVIEW

The Spanish system has two types of Personal Income Tax:

1. PIT for Spanish resident individuals and
2. NRIT for individuals who are not resident in Spain

Spanish resident individuals are generally liable to PIT on their worldwide income wherever it arises.

Non-resident individuals are chargeable to NRIT on their Spanish source income only.

RESIDENCE

An individual is liable to Spanish tax based on his or her residence.

An individual is deemed to be Spanish resident if he or she spends more than 183 days in the tax year (i.e. the calendar year) in Spain or if the individual’s main centre of business or professional activities or economic interests is located in Spain.

It is important to bear in mind that temporary absences from Spain are ignored when calculating the number of days for the purposes of establishing residency except where tax residence in another jurisdiction can be proven.

Where the individual does not satisfy the above 183 day rule, he or she will not be considered Spanish tax resident for the calendar year in question and as a result, Spanish source income including capital gains will be liable to NRIT.

In situations where an individual may be deemed to be tax resident in two jurisdictions in the same tax year, it is essential that the individual consult the relevant Double Taxation Agreement to establish what relief or exemption from Spanish Tax may be available.

Generally speaking, the credit for Spanish tax withheld on foreign source income and capital gains tax will be the lower of:

a)      Actual foreign tax withheld on the foreign source income which is equivalent to the Spanish PIT or NRIT

b)      Average effective PIT rate applied to the foreign source income taxed in the other jurisdiction.

 COMPLIANCE

Individuals must file a Tax Return and pay the relevant taxes within six months of the end of the calendar year i.e. 30^th June following the year end, being 31^st December.

Married couples may elect to file their tax returns either jointly or separately.

There are strict filing deadlines for non-resident individuals.  Please be aware that there are no deadline extensions available.

There are a number of penalties to consider including:

a)      Penalties for the underpayment of taxes range from 50% to 150% of the unpaid tax liability.

b)      Penalties for the late payment of taxes range from 5% to 20% where such payments are made on a voluntary basis and not as part of an audit or investigation.

c)      Statutory Interest on late payments will also apply.

WORK PERMITS / VISAS

Individuals entering Spain from outside the E.U., as either employees or self employed individuals, must obtain a work and residence permit prior to commencing their self employed or employment activity in Spain.

The Work and Residence permits are issued for a twelve month period.

It is possible to renew this permit two months in advance of its expiry date and always advisable to do so before the permit has expired.

For individuals entering Spain from E.U. member states, there is no requirement to possess a Work and Residence Permit.

For E.U., EEA or Swiss individuals who wish to remain in Spain beyond a three month period, they are required to register with the Spanish Authorities and obtain the Central Registry for Foreigners Certificate.

TAXES

For general taxable income received by Spanish resident individuals, progressive tax rates ranging from 19% to 48% are applied. These rates depend on the Autonomous Community in which the individual is deemed to be tax resident.  As a result, tax liabilities can vary from one autonomous region to another.

Dividends, Interest, Capital Gains and Savings Interest are taxed at the following rates:

• 19% for the first € 6,000 of taxable income.
• 21% for the following €6,000 up to €50,000 of taxable income.
• 23% for income exceeding €50,000.

Non resident individuals are taxed at a flat rate of 24% on Spanish source income.  This rate is reduced to 19% for individuals who are tax resident in an EU member state or an EEA country with which there is an effective exchange of tax information treaty in place.

Income Tax is levied on the gross Spanish source income but there are no deductions or tax credits available for offset with the exception of certain expenses for E.U. tax resident individuals.

Investment income (i.e. Interest and dividends) arising for non resident individuals are liable to 19% tax although this figure may be reduced depending on the Double Taxation Treaties in place.  It is important to bear in mind that Interest for EU residents in tax exempt.

From 2016 onwards Capital gains will be taxed at 19% if arising from the transfer of assets.

Royalty income is liable to tax at 24%

Pensions are taxed at progressive rates ranging from 8% to 40%.

SOCIAL SECURITY

As a general rule, all employees working in Spain must be registered with the Spanish social security administration. The employer is obliged to make employer and employee contributions depending on the category of each employee and social security contributions are paid on salaries/wages.

The general contribution rate for employees is 6.35%.

The general contribution rate for employers is 29.9% in addition to a variable rate for general risk.

These rates depend on the activities engaged in by the companies as well as the employee’s employment and educational category.

Inbound assignees may continue to make social security contributions in their home countries in line with International Social Security Agreements and E.U. regulations and as a result claim an exemption from paying social security contributions in Spain.

To qualify for the exemption E.U. nationals must obtain the necessary official certification from the relevant Social Security Authorities in their country of origin.

There are three situations in which an exemption from Social Security in Spain may be claimed:

1. In situations where a social security agreement between Spain and the individual’s country of origin exists which provides for such an exemption.

2. Where the individual continues to be employed by an employer resident in the country of origin and as a result he/she continues to contribute to the social security system of his/her home country.

3. Where the individual remains in Spain for between one and five years depending on the conditions of the social security agreement in place between Spain and that individual’s country of origin.