Business Tax Analysis Dublin

 

The Minister for Finance Jack Chambers published his first Budget today  announcing a number of changes to our corporate tax regime.  As a result, a raft of tax measures and policies will be introduced to support Irish start-ups, small and medium-sized enterprises (SMEs) and multinational businesses.  Budget 2025 provided for a total budget package of €10.5b.  Our focus in this article, however, is purely on Business Taxes under Capital Gains Tax, Corporation Tax, VAT and Employer/Employee Taxes.

 

 

So, what are the Tax changes introduced?

 

Here is a summary of the Tax Measures under VAT, payroll taxes, CGT and Corporation Tax:

 

 

 

VAT Changes

1. VAT registration thresholds

2. Extension of the temporary 9% VAT rate in relation to supplies of gas and electricity for an additional six months.

3. Increase in the farmer’s flat rate addition from 1^st January 2025.

4. Introduction of a new 9% VAT rate on heat pumps.

 

 

 

Payroll Changes

5. Amendments to the Benefit-in-Kind (BIK) on cars

6. Increase in the annual employee Small Benefit Exemption from €1,000 to €1,500. A business will also be able to give five non-cash benefits to their employees in a single year.

 

 

 

 

Capital Gains Tax Changes

7. Amendments to Retirement Relief.

8. Amendment to Relief for Angel Investors.

 

 

 

Corporation Tax Changes

9. Corporation Tax Changes in relation to EII, SURE and SCI

10. Participation Exemption – Exemption for companies in receipt of Foreign Dividends

 

 

 

 

Let’s start with VAT.  

• With effect from 1^st January 2025, the VAT registration thresholds will be increased from €40,000 to €42,500 for services.

• The VAT registration thresholds will be increased from €80,000 to €85,000 for goods with effect from 1^st January 2025.

• The unregistered farmers flat rate scheme will be increased from 4.8% to 5.1%.

• There will be an extension of the reduced 9% VAT rate on electricity and gas up to 30^th April 2025.

• From 1^st January 2025, the 9% VAT rate will also apply to heat pump installations. This will have the effect of reducing the cost of replacing inefficient boilers.

 

 

 

 

Next, the EMPLOYER / EMPLOYEE TAX changes:

 

SMALL BENEFIT EXEMPTION

• There will be an increase in the annual limit of the small benefit exemption from €1,000 to €1,500.

• It has also been amended to allow five non-cash benefits, up from two, to be granted by an employer in a single year. The cumulative total of the first five benefits in a calendar year cannot exceed €1,500.

• From 1^st January 2024 an employer is required to return details of all qualifying incentives provided to employees where the small benefit exemption applies.

• This benefit can be given to any employee of the company, including directors and shareholders, providing they are on the payroll.

 

 

BENFIT-IN-KIND

• Budget 2025 introduced a BIK exemption for home car chargers provided by employers. It provides for an exemption from Benefit-in-Kind where it is the employer who incurs the cost of providing a facility for electric charging of vehicles at the home of an employee or director.

• There is a deferral of the proposed tapering of Benefit-in-Kind Relief for electric vehicles. The universal relief of €10,000 which applied to the Original Market Value of a vehicle in Category A – D is being extended to 31^st December 2025.  The amendment to the lower limit of the highest mileage band has also been extended until 31^st December 2025.   Therefore, the highest mileage band is entered into at 48,001km.

 

 

 

 

 

Here are some CAPITAL GAINS TAX changes:

 

RETIREMENT RELIEF

 

Retirement Relief (CGT) supports the cost effective / tax efficient transfer of businesses and farms from one generation to the next.

Finance Act 2023 introduced a number of amendments to the Retirement Relief regime which included:

1. an increase in the upper age limit from 66 years old to 70 years old.

2. A cap of €10 million of proceeds / market value where the individual disposing of the assets to a child is aged from 55 to 69 years.

3. The current limit of €3million will continue to apply but only from age seventy.

 

 

When do these changes come into effect?

These changes were to come into effect on 1^st January 2025.

 

 

 

What about the upper age limit?

Budget 2025 will retain the increased upper age limit.

 

 

 

What about a clawback period?

It also introduced a clawback period of twelve years on the Relief.

 

 

 

What does that mean?

This means that any tax arising due to the cap of €10 million will be abated provided the assets are retained for twelve years.

 

 

 

To clarify:

In other words, the €10 million cap, due to be introduced on 1^st January 2025, will only apply in circumstances where the child disposes of the assets within twelve years.

 

 

 

ANGEL INVESTOR RELIEF

 

Angel Investor Relief, introduced in Budget 2024.  It was aimed at encouraging business angel investment in innovative start-ups.

Finance Act 2023 introduced a reduction on this rate for angel investors, bringing it down from 33% to 16% or 18%.

 

 

What changes did Budget 2025 bring about?

Budget 2025 provides:

(a) Capital Gains Tax Relief for a third party individual

(b) who takes a significant minority shareholding (i.e. between 5% and 49% of the ordinary issued share capital of the company)

(c) for a period of at least three years,

(d) in a certified innovative start-up small and medium enterprise (SME) company

(e) which is less than seven years old.

 

 

What form must the investment take?

The investment by the individual must be in the form of:

(a) fully paid-up newly issued shares

(b) costing at least €20,000 or €10,000

(c) if acquiring between 5% and 49% of the ordinary issued share capital of the company.

 

 

What are the effective reduced CGT rates?

• Qualifying investors will be able to avail of an effective reduced rate of CGT of 16%, or

• 18% if through a partnership,

• on a gain up to twice the value of their initial investment.

 

 

What about lifetime limits?

There was previously a lifetime limit of €3 million on gains to which the reduced rate of CGT will apply.  Budget 2025 has increased this limit to lifetime gains of up to €10 million.

 

 Therefore, the amount on which the reduced CGT rates of 16% or 18% will apply is the lowest of the following:

1. The actual chargeable gain.

2. Twice the amount of the investment.

3. €10 million less the total of all/any other chargeable gains that may qualify under this Relief.

 

 

 

There will be a number of CORPORATION TAX changes:

 

The following will be extended for a further two years until 31^st December 2025:

1. Employment Investment Incentive (EII),

2. Start-Up Relief for Entrepreneurs (SURE) and

3. the Start-Up Capital Incentive (SCI)

In addition, the EII limit on the amount that an investor can claim relief on will be doubled.  In other words, it will be increased from €500,000 to €1,000,000.

It is proposed to increase the SURE relief available to a maximum of €140,000 per year or a total of €980,000 over seven years.

 

 

Research and Development (R&D) Tax Credit

As you’re aware, the existing Research and Development (R&D) Tax Credit provides a 30% tax credit for all qualifying R&D expenditure.

 

What increased have been introduced?

The first year payment threshold will now increase from €50,000 to €75,000.

Companies with claims of between €75,000 and €150,000 will benefit from a €25,000 increase in the first instalment of their claim.

Companies with claims of in excess of €150,000 will continue to receive a first instalment amount based on 50% of the R&D Tax Credit claim.

 

 

Two new Audio-visual incentives

 

1. Tax Credit for Unscripted Productions

A new tax credit will be introduced for the unscripted film production sector.

The relief will take the form of a 20% Corporation Tax Credit for certain production expenditure up to a maximum limit of €15 million per project.

 

What is the commencement date?

The commencement will be subject to State Aid approval from the European Commission.

A cultural test will be introduced.

 

 

 

2. Scéal Uplift

The second incentive is an 8% uplift referred to as the “Scéal Uplift”.

 

What does it involve?

This involves an uplift of 8% to the existing film credit in respect of certain feature film productions.

 

How will it be applied?

It will be applied to the existing film credit.   It will result in a tax credit rate of 40% for projects with a maximum qualifying expenditure of up to €20 million.

 

Who is this incentive aimed at?

This incentive is for small to medium budget productions under the Section 481 film tax credit.

 

What is the commencement date?

As with the Tax Credit for Unscripted Productions, the Scéal Uplift is subject to State Aid approval.

  

 

 

FOREIGN DIVIDENDS

With effect from 1st January 2025, a new Participation exemption for foreign sourced dividends from subsidiaries in EU/EEA and tax treaty jurisdictions will be introduced.  The aim is to simplify existing Double Taxation Relief provisions.

Currently, Ireland operates a worldwide corporate tax regime.  This means that all the profits (both domestic and foreign) earned by an Irish resident company are subject to Irish tax.  Relief is available for any foreign taxes deducted under a ‘tax and credit’ regime.

 

What are the new rules?

Under the new rules, a company will have the option of either:

(a) claiming the participation exemption or

(b) continuing to use existing tax-and-credit relief.

 

 

 

How will this be done?

To do this, an election will have to be made in the company’s annual corporation tax return. It will apply to all qualifying dividends in that particular period.

 

 

What about non-qualifying jurisdictions?

For non-qualifying jurisdictions, the existing method of claiming double taxation relief should continue.

 

 

When will it come into effect?

The new participation exemption for foreign source dividends will come into effect from 1^st January 2025.

 

 

 

 

 

If you would like full information on Budget 2025, please click https://www.gov.ie/en/publication/e8315-budget-2025/

 

 

 

 

 

Accounts Advice Centre is a firm of Tax Accountants recognised for balancing professional corporate tax expertise with personal service.  We focus on mid-market, entrepreneurial, and family-owned businesses.  To make an appointment, please email queries@accountsadvicecentre.ie

 

 

 

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.