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Personal Tax, Business Taxes, Capital Gains Tax, VAT. Corporation Tax

Today, 10th October 2023, the Minister for Finance, Michael McGrath and Minister for Public Expenditure, NDP Delivery and Reform, Paschal Donohoe presented the 2024 Budget.  This article will summarise the main points under Personal Tax, Business/Corporation Tax, VAT, Capital Gains Tax (CGT), Property Taxes, etc.

Budget 2024 tax measures feature a range of supports for individual and business taxpayers under the following headings:

PERSONAL TAX

• All PRSI contribution rates will increase by 0.1% from 1st October 2024. There will be an increase of 0.1% in Employee and Employer’s PRSI contributions from 1st October 2024. Class A1 Employee PRSI will rise from 4% to 4.1%.  Employer’s PRSI will rise from 11.05% to 11.15% and the reduced rate of Employer’s PRSI for earnings of €441 per week or less will rise from 8.8% to 8.9%.

• The standard rate band for Income Tax (i.e. the amount of income subject to tax at the 20% rate) will be increased by €2,000, meaning that the first €42,000 of a single individual’s income and the first €51,000 for married couples, with one earner, will be taxed at the 20% Income Tax rate.

• The ceiling for the 2% USC rate will be increased from €22,920 to €25,760. The 4.5% rate of USC will be reduced to 4% and the reduced rate of 2% USC currently applying to full medical card holders as well as those individuals aged over seventy, whose total income does not exceed €60,000, will be extended to the end of 2025.

• The Personal Tax Credit, the Employee Tax Credit and the Earned Income Tax Credit will each be increased from €1,775 to €1,875 for the tax year 2024 onwards.

• The Home Carer tax credit will be Increased by €100, from €1,700 to €1,800.

• The Single person child Carer tax credit will be increased from €1,650 to €1,750.

• The Incapacitated Child Tax credit will be increased from €3,300 to €3,500.

• The Sea-going Naval Personnel Tax Credit has been extended for a further year to 31st  December 2024.

• The Rental Tax credit for principal private residence has been increased from €500 to €750 per year for 2024 or from €1,000 to €1,500 per jointly assessed couple (i.e. married couples or civil partners). Parents who pay for their student children in Rent-a-Room or digs accommodation can now claim relief for rent paid. This change has been backdated and will apply retrospectively to the years 2022 and 2023.  In order to qualify for this tax credit, the children must attend an approved course.

• A temporary one year tax credit in relation to mortgage interest has been introduced for 2024.  It will apply at the standard Income Tax rate of 20%, subject to a maximum tax credit of €1,250 per property, on an outstanding mortgage balance on the taxpayer’s Principal Private Residence of between €80,000 and €500,000, as of 31^st December 2022.  To claim the tax credit, the taxpayer must be compliant with Local Property Tax requirements and file a Tax Return.  The tax credit will be available for offset against the taxpayer’s Income Tax liability for the 2023 year of assessment.  Prorating of the relief will apply where the interest paid is less than twelve months.

• The Company car Benefit-in-Kind relief introduced in Finance Act 2019 to apply from 1^st January 2023 have been extended to 2024.  With effect from 1st January 2023, BIK on employer provided cars is calculated based the vehicle’s CO2 emissions.  The amount liable to tax as BIK is determined by (a) the original market value of the car, (b) the annual business kilometres driven and (c) the CO2 emission rate of the vehicle.  In March 2023, a temporary change was introduced to combat the negative impact of this new BIK rule on the employee’s net or take-home pay.  It provided for a reduction of €10,000 to the original market value of vehicles in categories A to D.  There is no reduction to Open Market Values for cars in the E category.  In addition, the highest business mileage band was reduced from 52,001 Kms to 48,001 Kms as part of that amendment.  These temporary universal measures have been extended to 31^st  December 2024.

• The Temporary Universal Relief of €10,000 applied to the Original Market Value of a company car, including vans, for vehicles in Category A-D is being extended to 31^st December 2024.

• The special Benefit-in-Kind rule on Electric Vehicles is being enhanced and extended. The current Original Market Value deduction of €35,000 will be extended until 31^st December 2025. Along with the additional €10,000 introduced in Budget 2024, Electric Vehicles will see a deduction of up to €45,000 on the open market value.  The tapering of this discount will, therefore, be deferred by two years.  In summary, the current reduction of €35,000 in OMV will continue to apply for all EVs until the end of 2025, and will taper to €20,000 for 2026 and €10,000 for 2027.

• The Department of Finance will be launching a public consultation on modernising share based remuneration.

• It was confirmed that EU State aid approval to deliver the Finance Act 2022 amendments to the Key Employee Engagement Programme (KEEP) has been received and will be commenced by Ministerial order shortly. This will include an extension of the scheme until 31^st December 2025 as well as doubling the lifetime company limit for KEEP shares to €6 million.  It will also enable the Capital Gains Tax treatment to apply to the buy back of KEEP shares by the company from a relevant employee, provided all the conditions are met.

BUSINESS TAX

• In his Budget 2024 Statement, Minister McGrath reaffirmed Ireland’s commitment to the OECD’s Two Pillar Agreement to address the tax challenges arising from the digitalisation of the economy. The legislation to implement the 15% minimum tax rate under the OECD’s Pillar Two agreement will be published in the Finance Bill next week.  Under the BEPS 2.0 initiative, these rules require EU Member States to introduce a global minimum effective tax rate (ETR) of 15% for corporate/multinational groups with annual global turnover of in excess of €750 million. This minimum corporate tax rate will apply in each jurisdiction in which the group operates.  The ETR will be calculated on adjusted financial accounting profits less tax expenses.

• Minister McGrath also reaffirmed his commitment to introducing a participation exemption for foreign sourced dividends in Finance Bill 2024.

• In his speech, the Minister confirmed that the R&D Tax Credit will be increased from 25% to 30% in respect of qualifying expenditure incurred in 2024. The first claims will be filed in 2025. There is a payment limit on the amount that can be paid to a claimant in the initial year of a claim. The Minister announced an increase in the payment threshold from €25,000 to €50,000 thereby doubling the amount of the R&D Tax Credit available for refund to the company, as part of its first year R&D Tax credit instalment.

• The Accelerated Capital Allowances Scheme for Energy Efficient Equipment, which is available to companies and unincorporated businesses, will be extended for a further two years until 31^st December 2025. The scheme allows for 100% Accelerated Capital Allowances to be claimed in year one, on capital expenditure on certain energy efficient equipment, used for the purposes of its trade, provided the qualifying conditions are met.

• As you may remember Finance Act 2022 extended film relief to 31^st December 2028. The Section 481 Film Corporation Tax Credit is a corporation tax credit of 32% of the qualifying costs of certain audiovisual productions. Budget 2024 increased in the current project cap for the film credit from €70 million to €125 million.  This is subject to EU State Aid approval.

• Employment Investment Incentive Scheme (EIIS) provides Income Tax Relief for investment in qualifying small and medium sized businesses, provided qualifying conditions are satisfied. Budget 2024 standardised the minimum holding period required to obtain relief to 4 years and it doubled the limit on the amount on which an investor can claim such relief to €500,000.  It is expected that further changes to EIIS will be made in the Finance Bill to take into account amendments to the EU General Block Exemption Regulation (GBER).

• Capital Gains Tax Retirement Relief applies on the disposal of business assets, farming assets and/or shares in certain family companies by an individual, aged fifty five years or over, provided certain qualifying conditions are met. A reduced Capital Gains Tax Relief is available where the individual is aged sixty six years and over. From 1st January 2025, that upper age limit for Capital Gains Tax Retirement Relief is to be extended to the age of seventy years.  In summary, the reduced relief which is available on disposals from age 66 onwards will now apply from age 70. There will also be a new limit of €10 million on the relief available for disposals to a child up until the age of 70 provided all the qualifying conditions are satisfied.

• No changes to Revised Entrepreneur Relief were announced in the Budget.

• A targeted new capital gains tax relief for individual angel investors in innovative start-ups, in line with the recommendation from the Commission on Taxation and Welfare, was announced today. The relief will be available to an individual who invests in an innovative start-up small and medium enterprise for a period of at least 3 years.  The investment by the individual must be in the form of fully paid-up newly issued shares costing at least €10,000 and constituting between 5 percent and 49 percent of the ordinary issued share capital of the company.  This relief will consist of a 16% rate of Capital Gains Tax (18% if invested through a partnership) on the disposal of qualifying investments, capped at twice the level of investment.  In other words, the gain to which this reduced CGT rate can apply is capped at 200% of the investment made.  Any gain above that will be liable to CGT at the standard rate of 33%. A lifetime gains limit of €3m will apply.   Further details will be available in the upcoming Finance Bill.  The scheme will include a certification process, carried out by Enterprise Ireland, to ensure the relief is targeted at innovative SMEs that can demonstrate financial viability and compliance with the requirements of the EU General Block Exemption Regulation (GBER).

PROPERTY

• As you’re aware, Finance Act 2022 introduced a Vacant Homes Tax which applies to residential properties which are in use as a dwelling for less than thirty days in a twelve-month chargeable period. With effect from 1^st November 2023, the rate will increase from three to five times a property’s existing base Local Property Tax liability.

• The Minister announced a one year extension to the liability date for Residential Zoned Land Tax (RZLT) to facilitate engagement with the mapping process by affected landowners. RZLT was previously intended to be charged and levied from 1^st February 2024 onwards. This has been deferred and will now apply from 1^st February 2025.

• A new temporary tax relief for small landlords will apply from 2024 to 2027. This Rented Residential Relief will provide relief at the standard rate of tax on a portion of the landlord’s rental income from residential properties.  Subject to certain conditions, €3,000 will be disregarded at the standard rate of tax in 2024.  The new relief will rise to €4,000 in 2025 and €5,000 in 2026 and 2027.  This will be equivalent to a tax credit of €600 in 2024, €800 in 2025 and €1,000 in 2026 and 2027.  The relief will be clawed back if the landlord removes the property from the rental market within four years of the initial claim.  To avail of the relief, the tenancies must be registered with the Residential Tenancies Board or with the public authority, where relevant.  In situations where the landlord owns multiple properties, the relief will be apportioned.  Where the property is jointly owned, the relief will be divided based on the percentage to which each owner is entitled.  Further information will be provided in the Finance Bill.

• The Help-to-Buy Scheme is being extended until 31^st December 2025. The relief takes the form of a repayment of Income Tax paid for the four years of assessment prior to making the application.  The scheme will be amended to make it more accessible to those purchasing properties through the Local Authority Affordable Purchase Scheme.  The affordable dwelling contribution received under the LAAP scheme can be used for the purpose of computing the 70% loan to value requirement of the Help to Buy Scheme.  This change will be implemented tomorrow, 11^th October 2023.

• The Defective Concrete Products Levy is being amended so that it will no longer apply to the pouring of concrete used to manufacture precast concrete products. A refund scheme will be introduced for those who paid the levy between 1^st September and 31^st December 2023.

AGRICULTURE

• The flat rate VAT compensation rate for unregistered farmers will be reduced from 5% to 4.8% from 1^st January 2024. This is a measure introduced to compensate unregistered farmers for the VAT they cannot claim on their farming purchases.

• Consanguinity Relief (Stamp Duty) will be extended for a further five years to 31^st December 2028. This reduced Stamp Duty rate of 1% applies to transfers of farmland between certain blood relatives.

• The scheme of accelerated capital allowances, at 50% per annum over two years, for capital expenditure incurred by farmers on certain farm safety equipment will be extended for a further three years, to 31^st December 2026. The expenditure must be certified by the Minister for Agriculture, Food and the Marine.

• The Minister announced that the Income Tax Relief for leased land will be amended so that it only applies to land which has been owned for seven years. Currently, no ownership period condition exists for the relief to apply. This amendment is targeted at active farmers and will apply to lessors who acquire farmland from 1^st January 2024. The change will require a lessor who purchases the farmland for market value on/after 1^st January 2024 to have owned the land for a minimum of seven years before they are eligible to make a claim for Land Leasing Income Tax Relief.

• From 1^st January 2024, the aggregate lifetime limits have been increased from €70,000 to €100,000 for the following Agricultural Reliefs: Stock Relief for Young Trained Farmers, Relief for Succession Farm Partnerships and Young Trained Farmers’ Stamp Duty Relief.

• The maximum Stock Relief for Registered Farm Partnerships will be increased from €15,000 to €20,000 for qualifying periods commencing on/after 1^st January 2024.

VAT

• With effect from 1^st January 2024, the current VAT business registration thresholds will increase from €37,500 to €40,000 for services and from €75,000 to €80,000 for goods.

• The 9% VAT rate for gas and electricity has been extended for an additional twelve months until 31^st October 2024. It had been due to end on 31^st October 2023.

• The Minister announced that a public consultation will be launched by the Revenue Commissioners shortly on the modernisation of the VAT invoicing and reporting system. The digitisation of the VAT system is expected to be introduced in line with EU tax digitisation measures.

• From 1^st January 2024, the zero rate of VAT will apply to e-books and audiobooks.

• From 1^st January 2024, the zero rate of VAT will apply to the supply and installation of solar panels in schools.

• From 1^st January 2024, the total annual capped fund for the Charities VAT Compensation Scheme will be double to €10 million.

MISCELLANEOUS

• No changes were announced in relation to the Capital Gains Tax rate, Capital Acquisitions Tax rate or the amount of the Capital Acquisitions Tax thresholds.

• In accordance with the recommendation of the Commission on Taxation and Welfare, foster children will now be able to avail of the Group B Capital Acquisitions Tax lifetime tax free threshold (currently €32,500) based on their relationship to their foster parent. This amendment will be introduced in the Finance Bill.

• The VRT relief for battery Electric Vehicles has been extended for a further two years to 31^st December 2025. This applies to EVs valued up to €50,000.

• The review of the Funds sector is ongoing.

• Tax Relief available to taxpayers who donate items under the Heritage Item Donation Scheme in any one year will be amended to take into account an increase in the aggregate value of such items from €6 million to €8 million. The tax relief available is a credit of 80% of the market value of the heritage item donated.

For further information, please click the link: https://www.gov.ie/en/publication/a93a4-your-guide-to-budget-2024/

Please be aware that the information contained in this article is of a general nature.  It is not intended to address specific circumstances in relation to any individual or entity. All reasonable efforts have been made by Accounts Advice Centre to provide accurate and up-to-date information, however, there can be no guarantee that such information is accurate on the date it is received or that it will continue to remain so.. This information should not be acted upon without full and comprehensive, specialist professional tax advice.

Corporation Tax. Capital Allowances. Research and Development. Business Taxes

INTRODUCTION

Apart from a highly skilled, English speaking workforce; membership of the E.U.; an excellent standard of living for employees seconded to Ireland; a large network of international routes and a successful track record of investment, research and development from U.S. corporations there are many advantages to setting up Intellectual Property Trading companies in Ireland.  The main focus of this article is the corporate tax advantages which can be summarised under the following headings: (i) Corporation Tax, (ii) Capital Allowances, (iii) Research & Development Relief, (iv) Withholding Tax and (v) Stamp Duty.

1. CORPORATION TAX

Ireland has one of the lowest corporation tax rates on trading income in the world.  The standard rate is 12½% on trading profits.

A 25% rate is charged on non-trading and foreign source income.  It is the rate applied to “passive income.”

To be eligible for the 12½% Corporation Tax rate the following criteria must apply:

1. The company must be a trading company.
2. The trade must be carried on in Ireland.
3. The trading activity must be controlled in Ireland.
4. The profit making apparatus must be located in Ireland.

Does your company qualify for the 12½% rate?

If your company is an Intellectual Property Trading Company established in Ireland with a workforce of individuals specialised in:

• Managing the intellectual property portfolio
• Developing and exploiting Intellectual property
• Promoting and licensing intellectual property rights for use by third parties

your company should be eligible for the 12½% rate of Corporation Tax.  If, however, there is any doubt, it is possible to obtain an advanced decision from the Irish Revenue Commissioners.  If the company does not qualify as a trading company, the 25% corporation tax rate will apply.

Other factors to be considered in the context of eligibility for the 12½% tax rate for IP companies include:

• Strategic and operational exploitation and management of the Intellectual Property in Ireland.
• The Irish company should incur marketing, legal and Research & Development expenditure in relation to the IP.
•  The Irish company should be responsible for the development and protection of the IP.

A point to keep in mind:

An Irish resident investment company which is in receipt of certain trading dividends can make an election for those dividends to be taxable at the 12½% rate.

2. CAPITAL ALLOWANCES

Capital Allowances are available for capital expenditure on the creation, acquisition and/or licence to use certain “specified intangible assets” which includes:

1. Copyrights
2. Patents and registered designs
3. Trademarks, brands, domain names and service marks
4. Computer software
5. Know How (related to commercial, industrial or scientific experience)
6. Goodwill to the extent that it is referable to the “specified intangible asset.”
7. Plant Breeder’s Rights
8. Secret Processes or Formulae
9. Applications or grant or registration of copyrights, patents, trademarks, etc.

Qualifying capital expenditure can be written off against 80% of the income generated from the “relevant trade” (income from developing, exploiting or managing the Intellectual Property) in either of two ways:

1. In line with the amount charged to the company’s profit & loss account  for the accounting period in respect of depreciation or amortisation or
2. Over a 15 year period.  A rate of 7% will apply for years 1 to 14 and a rate of 2% will apply for year 15.

A point to keep in mind:

A clawback of capital allowances claimed will arise if the IP is sold within ten years of its acquisition.  In other words no balancing allowance or charge event will arise if the intangible asset is sold ten years after the date of acquisition provided the intangible asset is not acquired by a connected company which is entitled to a tax deduction under this section.

3. RESEARCH & DEVELOPMENT RELIEF

Background

The 2012 Finance Act introduced a new tax relief which allowed a company to surrender a portion of its R&D tax credit to key employees engaged in research and development activities.

This relief reduced the employee’s Income Tax (but not Universal Social Charge) on relevant emoluments providing the employee’s effective income tax rate didn’t fall below 23% in any tax year.

To be eligible for this relief:

a)      The key employee must have performed 75% or more of the duties of his/her employment in “the conception or creation of new knowledge, products, processes, methods and systems.”

b)      In addition 75% of the employee’s emoluments with the employer in question must qualify as expenditure on R&D within the provisions of Section 766 TCA 1997.

2013 Finance Act

The 75% thresholds were reduced to 50%.

This applies to accounting periods commencing on or after 1^st January 2013.

The Finance Act 2013 increased the amount of qualifying R&D expenditure that can be ignored when referencing current year expenditure to base year expenditure from €100,000 to €200,000.

This means that the first €200,000 of qualifying expenditure is effectively on a volume base.  Any qualifying amount in excess of this €200,000 is compared to the 2003 threshold amount and the R&D credit will be calculated on this portion of qualifying expenditure in the normal manner.

How does this relief work?

The R&D Tax Credit is available to:

• offset the current year corporation tax liability of the company (the aggregate amount to be surrendered cannot exceed the corporation tax for the accounting period).
• to reward key employees who have been involved in the development of the R&D i.e. a “relevant employer” can surrender the benefits of the R&D credits to the employee who will then be entitled to have his/her income reduced by the amount of the tax credits surrendered in the tax year following the tax year in which the accounting period of the employer ends.
• Excess credits can be (a) carried forward indefinitely, (b) carried back to previous year, (c) surrendered within the group or (d) reclaimed from Revenue over a three year period, provided certain conditions are met.

In addition to the above relief, there is also a tax credit for capital expenditure on buildings or structures used for the purposes of R&D activities.

The tax credit is 25% of the cost of construction or refurbishment of a building or structure used to facilitate the R&D activity.  This is available on a proportional basis if at least 35% of the building is being used for the purposes of R&D.

Two points to remember:

1. The full R&D credit can be claimed in the year in which the expenditure was incurred.
2. There is a ten year claw back in situations where the building is (a) sold, (b) ceases to be used for the purposes of R&D or (c) ceases to be used for the purposes of the same trade by the company.

4. WITHHOLDING TAX

In general, Irish resident companies must deduct 20% withholding tax on dividends and other profit distributions.

There are, however, a number of situations where shareholders can receive dividends free from withholding tax from an Irish resident company providing certain documentation is filed.  For example:

1. Where the recipient of a patent royalty payment is resident in an E.U. member state or a country in which Irish has a double taxation treaty in place.
2.  In situations where no tax treaty is in place, unilateral relief for foreign tax suffered on royalties received from abroad is available.

Extensive exemptions are available with regard to dividend payments to:

1. Irish resident companies
2. Pension Funds
3. Companies controlled by residents from an E.U. member state or tax treaty country and not under the control of Irish residents.
4. Companies that are not resident in an E.U. / treaty country but which are controlled by tax treaty residents
5. Individuals resident in an E.U. member state or tax treaty country

As a result of these exemptions it is generally possible to extract profits from an Irish resident company by way of dividends free from Irish tax.

A point to remember:

Withholding tax of 20% may apply to interest payments on loans/advances paid in the course of a trade or business to an E.U./Treaty country resident company.  Providing the loan is capable of lasting in excess of twelve months no withholding tax should apply.

5. STAMP DUTY

Intellectual Property can be transferred to an Irish resident company without incurring Stamp Duty in Ireland.

Goodwill that is directly attributable to such IP is also covered by this stamp duty exemption.

SUMMARY

Ireland has one of the most competitive tax structures for trading and holding companies.  The main tax advantages are:

1. 12½% standard rate of Corporation Tax.
2. Significant Tax Credits for R&D Expenditure
3. No Capital Duty on incorporation.
4. Generally no Irish Stamp Duty on the transfer of Intellectual Property
5. Exemption for gains on the disposal of shares in a subsidiary company.
6. Tax Relief on the acquisition and development of Intellectual Property.
7. Exemption from withholding taxes to companies resident in E.U. member states and countries with which we have a double taxation treaty.
8. Availability of 25% Tax credit for capital expenditure incurred on buildings constructed or refurbished for the purposes of carrying on an R&D activity.

For further information, please click: https://www.revenue.ie/en/companies-and-charities/documents/research-and-development-tax-credit-guidelines.pdf

Please be aware that the information contained in this article is of a general nature.  It is not intended to address specific circumstances in relation to any individual or entity. All reasonable efforts have been made by Accounts Advice Centre to provide accurate and up-to-date information, however, there can be no guarantee that such information is accurate on the date it is received or that it will continue to remain so. This information should not be acted upon without full and comprehensive, specialist professional tax advice.