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Budget 2015
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Table of contents
Overview3
Economic update
5
Foreign Direct Investment (FDI)
7
Personal tax
9
Pensions11
Property13
Plcs15
Private business
17
Financial services
19
VAT21
Excise duty
22
Research and development (R&D)
23
Agri sector
25
Tax rates
27
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2
Overview
Feargal O’Rourke
+353 1 792 6480
[email protected]
Some observers view this year as being
one of the most difficult Budgets of the
cycle since the Global Financial Crisis
erupted. When you have nothing to
give out, the argument goes, you can
say no to everyone. Minister Noonan
faced a “problem” that had not been
faced in seven prior Budgets - he had
a small bit of wiggle room and lots of
stakeholders were putting forward
their cases.
On the personal tax side he had to
weigh up the economic consequences
of tax cuts, the psychological impact of
offering some benefit to hard pressed
taxpayers and the political calculus of
an election that is starting to appear
on the horizon. On the corporate tax
side he had to try and repair some of
the international reputational damage
done in recent times, calm the nerves
of existing multinationals and have
a few “polished up” new incentives
for indigenous and the FDI sector.
Remarkably, in the times we’re in, he
seems to have addressed most of his
major objectives.
The changes announced to the
corporate residence rules demonstrate
Ireland’s commitment to ensuring
that its taxation system is globally
accepted as an open, transparent,
rules based system which is fair
and, most importantly, competitive.
Ireland has suffered a lot of unfair
criticism internationally around the
‘Double-Irish’ structure. The decisive
action taken in introducing domestic
legislation to close this off should
boost our reputation internationally.
The proposed grandfathering period
of six years will provide affected
multinational groups with time and
flexibility to restructure their global
arrangements in a considered manner,
particularly important given the
current uncertainties on how BEPS will
impact the tax law of other countries
in which they operate.
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3
The proposed ‘Knowledge
Development Box’ and other
improvements announced to
our R&D and IP offering should
further encourage the location of
intellectual property in Ireland. The
Minister’s stated intention to make
this offering ‘best in class and at a
low competitive and sustainable tax
rate’ will be crucial for Ireland in an
environment where many countries
have attractive ‘Innovation Box’
offerings. These measures should
reaffirm Ireland’s competitiveness
and that we continue to be “open
for business”.
Since 2009, taxpayers have
experienced significant cuts to
their disposable income with the
introduction of the income levy,
then replaced by the universal
social charge (USC), and the
more recent introduction of local
property tax and water charges.
The adjustments to USC and tax
bands and the decrease in the top
rate of tax announced as part of a
three year strategy provide welcome
relief for taxpayers with, at last, an
easing of their personal tax burden.
The moves signalled to reduce local
property tax rates from 2015 and
to provide tax credits for water
charges provide further good news.
Opinion polls have shown that,
while there is broad agreement
that the economy is in recovery,
individuals have not expressed
the same sentiment personally.
The personal tax measures
announced as part of a three year
strategy should give confidence to
individuals that this is a real change
in direction for them and provide
a welcome measured stimulus to
spending.
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4
Economic update
Austin Hughes
On any reasonable view the most
noteworthy aspect of Budget 2015 is
what it says about how far the Irish
economy has come in recent years.
A major improvement in economic
conditions together with the very
painful adjustments undertaken in
recent years mean that the target
of reaching a deficit of under 3% of
GDP has been reached without any
additional austerity measures-indeed
with some modest ‘giveaways’ being
announced today. A year ago, it was
felt that an adjustment of at least €2
billion would be needed and of course
you only have to go back a couple of
years to a time when many felt the
Irish Government would not avoid a
sovereign default. Viewed from this
perspective Budget 2015 is a major
achievement.
Budget 2015 had to strike a balance
between encouraging a still uneven
recovery and continuing to reduce
Government borrowing. Getting
this mix exactly right isn’t easy and
economists will probably differ in their
opinion as to how Budget 2015 fared
in this regard. I think some support to
spending power was understandable
as are initiatives in areas such as
social housing and teacher numbers.
However, I think fewer initiatives
and a slightly smaller deficit, say just
below 2.5% of GDP, might have been a
slightly better combination.
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5
Initially, it was envisaged that
Budget 2015 would comprise cuts
in public spending of around €1.3
billion and revenue increases of
about €700 million. According to
Minister Howlin, public spending in
2015 will be about €2 billion higher
than envisaged a year ago while
Minister Noonan indicated the
tax measures he announced today
would cost a net €418 million next
year. So, Budget 2015 marks a fairly
radical departure from what was
originally envisaged.
A year ago, the Dept of Finance
predicted that the Irish economy
would grow by 2.0% in 2014 and by
2.3 % in 2015. It now sees growth
of 4.7% this year and 3.9% in 2015.
So, growth is roughly twice as fast
over this year and next as originally
expected. In these circumstances,
it is slightly disappointing that the
Government deficit for 2015 at
2.7% of GDP is just a shade below
the original target of 2.9%.
The Dept of Finance now envisages
the increase in consumer spending
accelerating to 2.7% in 2015 from
1.7% in 2014 before slipping back to
an increase of 1.4% in 2016. Could
this be telling us more about the
upcoming election than the contours
of growth over the next couple of
years? My sense is that the Irish
economy is on a reasonably solid
path even if global uncertainties still
abound. There may be some official
inclination to play down the longer
term outlook and the Budget leeway
that might allow.
Budget 2015 marks a dramatic
change in the fortunes of the Irish
economy. It does many things very
well but there is a sense that it could
have struck a slightly different
balance that might have made things
even better.
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6
Foreign Direct Investment (FDI)
Significant corporate tax reform
The key Budget 2015 announcements
of relevance for the FDI sector are as
follows:
• Another strong and unambiguous
commitment to our 12.5%
standard corporation tax rate.
Liam Diamond
+353 1 792 6579
[email protected]
• Following on from limited changes
last year, broader corporate tax
residence reform to ensure that all
Irish incorporated companies will
be Irish tax resident (subject to “tiebreaker” provisions in double tax
agreements if applicable). These
new provisions will apply from 1
January 2015 for new companies
and from 1 January 2021 for
existing companies.
• Enhancements to our existing IP
tax regime including improving
the capital allowances regime for
expenditure on IP and the proposed
introduction of a “Knowledge
Development Box” regime with a
“best in class”, low, competitive,
sustainable tax rate for IP income.
The latter will be effective from
1 January 2016, subject to EU
approval.
• A number of positive income
tax measures aimed at reducing
the tax burden on employment,
including: a reduction in the higher
income tax rate from 41% to 40%; a
widening of the income tax bands;
and USC (Universal Social Charge)
regime changes.
• Enhancements to our SARP
(Secondee Assignment Relief
Programme) regime to improve
Ireland’s competitiveness in
attracting senior foreign executives
to relocate to Ireland (salary
threshold removed, residence
requirements amended).
• Changes to our 25% (refundable)
R&D tax credit regime to remove
the “base year” limitation on
qualifying spend. This will be
welcomed by longer established
FDI investors.
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7
Certainty for FDI investors welcome
As a leading FDI destination, Ireland
finds itself increasingly drawn into
the global international tax policy
debate. In this context, Budget 2015
contains a number of significant tax
proposals.
Are we there yet?
watch video
In an effort to further enhance the
transparency of our tax regime,
Ireland will change its corporate
tax residence rules to phase out the
so-called “double Irish” structure.
Such changes should not, however,
require immediate action by
existing investors due to 6 year
“grandfathering” provisions.
IP tax regime enhancements are
also proposed, most notably the
introduction of a “Knowledge
Development Box” regime from
1 January 2016, which will be
preceded by a public consultation
process. Our FDI competitors (e.g.
the UK, Netherlands, Luxembourg
etc.) already have this, and
soon Switzerland will too, so
it is important that we remain
competitive. In addition, the capital
allowances regime for expenditure
on IP has been improved with the
removal of the 80% cap on combined
allowances and related interest,
and the definition of qualifying
IP amended to explicitly include
customer lists.
And, importantly, Finance Minister
Noonan has again clearly stated
Ireland’s commitment to the 12.5%
tax rate.
With better than expected growth
and reduced borrowing costs, the
Minister has also started to ease the
income tax burden on employment.
Importantly for the FDI sector,
the Minister has also announced
improvements to our “SARP” tax
regime for inbound assignees.
FDI has remained one of the
consistent bright lights in our
economy. This package of tax
measures should provide certainty
on our tax regime to existing and
new FDI investors alike and ensure
that Ireland remains competitive as a
location in which to align IP, profits,
and substance.
Contents
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8
Personal tax
Lower and middle
income earners
benefit
Pat Mahon
+353 1 792 6186
[email protected]
The top rate of income tax has been
reduced to 40% (a reduction of 1%).
While the standard rate of tax remains
at 20%, the threshold at which middle
income earners will start paying the
higher rate of tax has increased to
€33,800 (up €1,000) for single people
and €42,800 (up €1,000) for married
couples with one earner. The threshold
at which earners will start paying USC
is also being increased to €12,012 (up
from €10,036 in 2014). Changes to the
USC bands and rates have also been
announced as follows:
Band
2015 Rate
€0 - €12,012 1.5%
€12,013 - €17,576 3.5%
€17,577 - €70,044 7%
€70,044 to €100,000 8%
PAYE income in
excess of €100,000 8%
Self-employed income
in excess of €100,000 11%
Tax relief for water charges has also
been announced in the form of a
tax credit at the standard rate of
tax (subject to a maximum credit of
€100). Relief from DIRT will also be
introduced for first time buyers saving
for a deposit.
Incentives for mobile
employees
The Foreign Earnings Deduction
(FED) is being extended until the
end of 2017 and the list of qualifying
countries is being extended to include
Chile, Mexico and certain countries
in the Middle East and Asia. Also, the
number of days required abroad to
qualify for the relief is being reduced
to 40 days (down from 60) and each
trip must now last 3 days minimum
(down from 4). Travelling time may
now also be included in the count.
The Special Assignee Relief
Programme (SARP) has also been
extended to 2017, and the conditions
to qualify for relief are being revised
to include the removal of the upper
€500,000 threshold and positive and
welcome changes to the residency
requirements.
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Mixed news for business
After 7 years of austerity budgets,
lower and middle income earners
will see an increase in take home
pay as a result of measures
introduced at the beginning of a
three year plan to ease the tax and
USC burden on them. However,
for those earning over €70,000,
the marginal rate of taxation will
remain at 52% (including USC and
PRSI). This will send a negative
message to international investors
who see headline tax rates in
Ireland as discouraging business
units from relocating here, and
goes against the Taoiseach’s own
stated aim of reducing the 52%
headline rate.
For the self-employed earning
over €100k, the increase in the
top rate of USC to 11% will be
a disappointment, considering
that the Minister had promised
previously to align the higher rate
of USC with the rate applicable to
PAYE taxpayers.
No changes were announced to the
PRSI rates, which remain at 4%
for both employees and the selfemployed. The employers PRSI
rate remains at 10.75% (8.5% for
employee’s earnings up to €356
per week).
Changes to the FED regime to
include additional key hubs,
together with the reduction in
number of qualifying days, will be
welcomed by companies looking to
expand overseas.
In addition, the changes to
the Special Assignment Relief
Programme (SARP), and the
removal of some of the barriers
for qualification for relief, should
assist in attracting specialised and
senior talent from abroad and may
compensate somewhat for a high
headline rate.
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10
Pensions
Munro O’Dwyer
+353 1 792 8708
[email protected]
Elimination of levy –
as planned
In a Budget speech that contained
very little reference to the pension
taxation regime, Minister Noonan
confirmed that he is ending the 0.6%
Pension Levy at the end of 2014, and
that the additional 0.15% Pension Levy
introduced for 2014 and 2015 will end
as planned next year.
There was concern beforehand that the
Minister would be tempted to extend
the Levy beyond the end of 2015, but
instead he clearly signalled the end of
a tax measure that has raised over €2
billion for the Exchequer since it was
introduced in 2011.
The lack of wider change is positive,
offering as it does a level of stability
for those considering saving for the
long term into a pension arrangement.
While the reference in the Budget
speech was made in the context of
the income tax system, hopefully the
sentiment around “confidence about
the future” can now be extended to the
pension taxation regime.
The key advantage of pension savings
remains the ability to defer income
until retirement, and the facility to
shelter all investment gains earned
on that deferred income from any
taxation. With a 41% DIRT rate
applying to interest income, and a
similar 41% exit tax applying on life
assurance policies and investment
funds the relative attractiveness of the
pension savings regime is significant,
given that a nil tax rate applies on
investment gains in the ‘post Levy’
pension world.
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If the silver lining is to have a
cloud, for individuals with larger
pension funds an increase in the
Standard Fund Threshold would
have been welcome even if it would
have been unexpected. The lack of
an announcement in the Budget
clearly suggests that individuals
should be planning for an extended
period where the Standard Fund
Threshold remains fixed at €2
million and any Personal Fund
Thresholds remain set in nominal
terms. With a backdrop of strong
investment market performance
(a typical pension managed fund
has increased by 50% over the past
3 years), increasing numbers of
pension savers may be paying penal
taxes on drawing pension benefits
where due care is not paid to their
pension savings strategy.
With stability potentially achieved
and the economic mood changing
for the positive, some tidying up of
the pension taxation regime may be
in order. To highlight some of the
anomalies that might helpfully be
addressed in the future:
• Employer contributions into an
occupational pension scheme are
more tax efficient than employer
contributions into a PRSA,
and the amount of employer
contributions into a PRSA that can
benefit from tax relief are capped.
• For indivdiuals aged 65 or
under, Approved Retirement
Fund distributions attract PRSI,
whereas pension income does not.
• Pension income and ARF
distributions are both liable to
USC; however, no USC relief is
given on contributions made (so
effectively USC is levied twice).
The Minister’s closing remarks
referred to a people who “can plan
for the future” – from a pensions
perspective, we’re happy to take him
at his word.
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12
Property
The Government announced a new
Construction 2020 strategy for
Ireland in May of this year. The main
objectives of the Construction 2020
strategy were to create a strong and
sustainable construction sector in
Ireland, while also creating jobs in the
sector.
Tim O’Rahilly
+353 1 792 6862
[email protected]
4. A public consultantion process will
take place in the coming months
to see whether further measures
need to be introduced to encourage
the owners of undeveloped sites
to ensure that their sites are
developed.
In addition, a lack in the supply of
social and affordable housing in the
country is widely regarded as an issue
which needs urgent attention.
5. The Minister confirmed that the
“living in the city” initiative is
due to be rolled out in early 2015
following the receipt of final
proposals for each city.
Budget 2015 has sought to address the
above issues by introducing a number
of new measures:
6. An increase in the threshold for
exempt income under the rent-aroom scheme to €12,000.
1. The “windfall gains tax” charge
of 80% in respect of disposals of
development land (where both a
rezoning and a disposal took place
on or after 30 October 2009) has
been abolished. From 1 January
2015, such profits will be taxed at
the standard rate of CGT (currently
33%).
7. A three year extension in
consanguinity relief from stamp
duty in respect of non-residential
property.
2. The availability of the Home
Renovation Incentive (“HRI”) has
been extended to landlords who are
subject to income tax until the end
of 2015.
8. A number of CGT, CAT and stamp
duty reliefs for farmers.
In addition, the 7 year relief from
CGT in respect of land and building
purchases between 7 December 2011
and 31 December 2014 has not been
extended.
3. A commitment to construct over
10,000 new social housing units by
the end of 2018.
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13
Budget 2015 attempts to address
the key objectives outlined in
Construction 2020. The abolition
of the “windfall gains tax” and
the extension of the HRI should
assist in increasing construction
activity in the country, which in
turn should lead to an increase in
jobs. Further positive meaures could
also be introduced after the public
consultation process in respect of
undeveloped land.
The commitment to construct a
minimum of 10,000 new social
housing units by the end of 2018 is
an important step in solving Ireland’s
social housing problems.
While the measures introduced are
quite comprehensive and should
assist in solving the main objectives
as detailed in Construction 2020,
further measures will need to be
taken in future years. Such measures
might include:
• Reduction in the VAT rate
applicable to construction
activities from 13.5% to 9%,
which should promote increased
construction activity and assist in
the creation of jobs.
• Abolishment of the 25%
restriction on interest
deductibility in respect of loans
taken out by individuals to
purchase, improve or repair their
rental properties. Anecdotal
evidence suggests that this
restriction is contributing to the
ever increasing costs of rents,
as landlords struggle to meet
their tax bills. In addition, this
restriction is particulary penal
for landlords with no economic
rental profits, but who still suffer
tax in respect of their rental
activities.
• An indication from the Minister
that current rates of CGT,
which are high by international
standards, are unlikely to remain
as high in the future.
Only time will tell whether the
Government has done enough in
Budget 2015 to achieve the objectives
set out in their Construction 2020
strategy, but the steps taken are a
positive indication that they are on
the right track.
Contents
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14
Plcs
Among the measures announced by
the Minister in his ‘Roadmap for Tax
Competitiveness’ are 10 key actions,
the following of which should be of
particular interest to Irish plcs:
Paraic Burke
+353 1 792 8655
[email protected]
• The Government’s continued
commitment to maintaining
Ireland’s 12.5% corporation tax
rate. The Minister referred to this
as ‘settled policy’.
• Extension and enhancement
of both the Foreign Earnings
Deduction (FED) and Special
Assignee Relief Programme
(SARP).
• The abolition of the base year
for R&D from 1 January 2015
and the publication of guidelines
to enhance clarity on the
administration of the regime.
• An extension of the scheme for
accelerated capital allowances for
energy efficient equipment to the
end of 2017.
• Enhancements to our current IP
regime to include the removal
of the 80% cap on the aggregate
amount of allowances and interest
which may be claimed. In addition,
customer lists have been included
within the definition of qualifying
assets.
• A commitment to strengthen the
capabilities of Ireland’s transfer
pricing Competent Authority,
recognising that international
transfer pricing disputes are likely
to increase in number.
• A commitment to expand Ireland’s
tax treaty network.
• The introduction of a ‘Knowledge
Development Box’ - an income
based tax regime for intangible
assets. This will be the subject of
public consultation and will be
introduced in 2015.
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15
For corporate taxpayers, much
of the recent focus has been on
the BEPS agenda and its impact
on Ireland’s ability to win FDI.
This was immediately apparent
from the Minister’s introduction
to the ‘Roadmap for Ireland’s Tax
Competitiveness’. Nevertheless, and
notwithstanding its FDI focus, Irish
plcs and headquartered groups stand
to benefit.
A positive development in boosting
Ireland’s competitiveness is the
announcement of changes to our
IP and R&D regimes. The public
consultation on the introduction
of a Knowledge Development Box
presents a valuable opportunity
for Irish business to contribute to
Ireland’s long term strategy and
value proposition.
On the broader BEPS front, Irish plcs
are likely to welcome the fact that the
Government did not take unilateral
legislative action at this point.
2015 and beyond may see more
action in relation to the BEPS project.
One area of particular interest
will be the debate regarding the
requirement for an Irish CFC regime
to be introduced. In the past, this has
been linked with the introduction
of a full dividend participation
exemption.
The extension and enhancement
of the FED should be welcomed
by Irish exporting plcs and Irish
headquartered groups. In addition,
the commitment to the introduction
of an integrated export finance
strategy in 2015 may be of interest.
One disappointing omission
from Budget 2015 was any mention
of the recent change to the taxation
of travel and subsistence expenses for
non-executive directors. Next week’s
Finance Bill may address this.
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16
Private business
Budget 2015 outlined a number of
initiatives to facilitate Irish private
businesses, as follows:
Colm O’Callaghan
+353 1 792 6126
[email protected]
• As part of a package of export
initiatives, Minister Noonan
announced a three year extension
to the Foreign Earnings Deduction
(FED) to 2017 and extended the
relief to additional countries,
including Mexico, Chile and certain
countries in the Middle East and
Asia. The conditions were also
revised to make it less onerous for
employees to qualify for the relief.
• Budget 2015 reemphasised the
importance of, and difficulties
associated with, private businesses
raising finance by announcing an
increase in the annual and overall
limits for the Employment and
Investment Incentive to €5m and
€15m respectively. In addition,
the Minister announced that the
Strategic Banking Corporation of
Ireland will increase the availability
of loans with longer terms and
more flexible conditions.
• The base year for the Research and
Development (R&D) Tax Credit
has been abolished, which will
allow companies to calculate and
claim their R&D tax credits without
restriction by reference to their
R&D expenditure in 2003 (where
previously applicable).
• The Budget also signalled an
extension to the three year start up
relief for new companies for one
additional year to the end of 2015.
The 80% windfall property tax
introduced in 2009 is to be abolished
with effect from 1 January.
• Improvements and amendments
to the Intellectual Property (‘IP’)
regime will remove some of the
restrictions which were previously
included, thus making it easier to
obtain relief for the acquisition and
development of IP.
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17
Irish private businesses have now
moved into post-austerity mode and
are planning for growth again, with
a focus on innovation and exporting.
It is testament to this focus on
innovation and exporting that Irish
private businesses have helped drive
the increase in employment and the
growth that we are now seeing in
the wider economy. Accordingly,
the measures announced today on
supporting innovation, through
changes to the R&D and IP regimes,
together with the extension of the
FED relief should continue to foster
the strong growth being seen across
the private business community.
Budget 2015 did include some
initiatives aimed at improving private
business finance, most notably
amendments to the EII scheme
and the announcement that the
Strategic Banking Corporation will
be formally launched next month.
However, a significant opportunity
was missed to introduce a relief to
promote loan capital investments in
private businesses by individuals,
such as including a USC exemption
or a reduced rate of income tax on
interest income earned.
The retention of the 9% VAT rate
in the tourism sector will no doubt
be seen as a huge boost for the
competitiveness of many private
businesses in this sector.
In addition, the reduction in the
effective tax rate for medium
and low income earners should
also significantly boost consumer
sentiment, fuelling domestic demand
for products and services. However,
despite this welcome move, calls
from the private business community
to reduce the cost of employer taxes,
through either a reduction in the
employer‘s PRSI burden
Are we there yet?
watch video
Contents
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18
Financial services
Measures relevant for financial services
John O’Leary
+353 1 792 8659
[email protected]
The Budget contains very few
measures which are specifically aimed
at the financial services sector. Having
said that, the Minister made specific
reference to the new Strategy for
Financial Services in Ireland, which is
currently being developed. The new
strategy will be launched next year and
will set down an action plan to develop
opportunities to grow the sector and
increase the numbers employed.
General measures signalled in
the Budget which are potentially
significant for the international
financial services sector include:
• Commitment of additional
Revenue resources to be dedicated
to expansion of the tax treaty
network.
• Commitment to early adoption
of Automatic Exchange of Tax
Information initiatives.
On the domestic side, the Budget
introduces a refund of DIRT on savings
to support first time buyers saving for
their first home. The refund will cover
savings up to a maximum of 20% of
the purchase price.
• A new “Knowledge Development
Box” and improvements to the
existing R&D regime.
• Improvements to the existing
income tax regime for international
assignees coming to Ireland
(Special Assignee Relief
Programme) and the Foreign
Earnings Deduction regime for Irish
employees who spend significant
time travelling abroad.
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19
Support for financial services strategy
It was very encouraging to hear
the Minister’s commitment to the
IFSC and his support for the new
strategy for Financial Services which
is currently being developed. Given
increased competition from other
financial centres, it is crucial that
this strategy, which will be launched
next year, delivers an action plan for
the next phase of growth of the IFSC
and that this plan is implemented
promptly.
The Knowledge Development Box
potentially provides a very attractive
regime for financial services groups
to develop and manage their
intangible assets from Ireland. The
extension of the existing capital
allowances regime for intangible
assets to include customer lists
significantly extends the scope of
this regime, and makes it accessible
to financial services groups. Many
financial services groups carry out
R&D activities in Ireland and claim
R&D tax credits, and the removal of
the base year restriction may benefit
some companies.
On the personal tax side,
improvements to the Special
Assignee Relief Regime have been
long called for by the international
financial services sector, and it
will be important that there is a
comprehensive overhaul of the
regime in the Finance Bill as the
current regime is not fit for purpose.
In summary, while the Budget is
light on specific measures for the
financial services sector, it contains
a number of general measures which
could be of significant benefit to
the sector. These measures, and
the commitment to the new IFSC
strategy to be launched next year,
mean that the Budget should be
positively received.
Contents
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20
VAT
Caroline McDonnell
+353 1 792 6526
[email protected]
Retention of the reduced
rate of 9%
Increase in farmer’s flatrate addition
In 2011, a reduced rate of VAT of 9%
was introduced for certain supplies,
mainly within the tourism and
hospitality sector. The Minister today
reiterated the importance of the
sector and its ability to deliver jobs. In
addition, the Minister acknowledged
that the reduction has been a
success, as an extra 23,000 have been
employed in the sector since mid2011. As a result, and as expected, the
reduced rate will continue to apply.
The rate will increase from 5% to
5.2% from 1 January 2015. The
scheme compensates unregistered
farmers for VAT incurred on certain
expenditure. It is reviewed annually to
ensure that it achieves the appropriate
compensation.
This will be welcome news to the
sector and will ensure that Ireland
remains as competitive as possible
while retaining existing employment
and creating new opportunities. The
Minister noted that prices in the sector
were rising and reiterated that he
would expect the relief to be passed
through to the consumer.
2015 place of supply
changes
From 1 January next, EU changes
concerning the place of supply of
telecommunications, broadcasting and
electronically supplied services will be
liable to VAT in the Member State of
the consumer (not the supplier).
As a result of transitional measures,
over the next few years, the
Department of Finance has estimated
that Ireland will gain additional VAT
revenues of €100m in 2015, rising to
€150m in 2019.
Despite calls for the reduced rate to be
extended to the construction sector,
that did not happen today.
There was no change to the
standard rate (23%) or the reduced
rate (13.5%).
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Excise duty
Tobacco products
with effect from midnight tonight, 14
October 2014:
• The excise duty on the price of a
packet of 20 cigarettes will increase
by 40 cents (VAT inclusive)
• A corresponding pro-rata increase
will apply to the other categories
of tobacco products (i.e. cigars and
other smoking tobacco)
• For a 25g pack of roll-your-own
tobacco, the duty increase will be
20 cents (VAT inclusive)
Excise duty relief for
microbreweries
The excise duty relief of 50% on the
standard Alcohol Products Tax for
beers produced in microbreweries
which produce not more than 20,000
hectolitres per annum has been
extended to apply to microbreweries
which produce not more than 30,000
hectolitres per annum.
Betting duty
The previously announced measures
in respect of extending betting duty
to remote bookmakers and betting
exchanges will be brought into force
in 2015 following the passing of the
Betting (Amendment) Bill 2013, and
will result in an estimated €25m return
to the Exchequer.
Other excises
Subject to a commencement order,
a 30 day deferral period is to be
introduced for payment of excise duty
on mineral oil. This is a significant
development and one which had been
lobbied for by the industry for some
time.
For Natural Gas and BioGas used as a
propellant, the excise rate will be set at
the current EU minimum rate, and this
rate will be held for a period of eight
years.
There will be an extension of the VRT
reliefs available for the purchase of
hybrid electric, plug-in hybrid electric
and plug-in electric vehicles and
electric motorcycles to 31 December
2016.
There will be no increase in excise duty
on alcohol, petrol or diesel, or to motor
tax or VRT.
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22
Research and development (R&D)
Stephen Merriman
+353 1 792 6505
[email protected]
The R&D tax credit regime has
become very important to Ireland’s
FDI offering and was endorsed
very clearly in a review undertaken
by the Department of Finance in
2013. A major conclusion from that
consultation process and review was
the public commitment provided by
the Minister to phase out the base year
“when resources allow”. We strongly
welcome today’s announcement
that the base year is in fact being
completely eliminated from 1 January
2015 – a faster process than many
would have considered possible this
time last year.
The decision to completely abolish
the base year follows subtle strides
made in the last three Budgets
towards the implementation of a
volume based regime. Currently,
only the first €300,000 of qualifying
R&D expenditure benefits from the
R&D tax credit on a volume basis,
so the enhancement is clearly very
significant.
The R&D regime has constantly
been enhanced since its introduction
in 2004 and the announcements in
Budget 2015 are once again very
positive. The Minister has sent out
a clear statement that Ireland is
committed to an innovation tax policy.
The key initiatives announced are the
following;
• The base year has been abolished
for the purposes of calculating the
R&D tax credit from 1 January
2015.
• A Consultation Process has been
initiated to consider the creation
of a ‘Knowledge Development Box’
regime.
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23
While the R&D regime has
largely been a success since its
introduction, the incremental
nature of the scheme has long
been identified as a limiting factor.
The imposition of a base year
has precluded some companies
from availing of the credit. This
has made it extremely difficult
for those companies to compete
internationally for R&D projects, as
well as their being disadvantaged
competitively versus new entrants
to Ireland. In effect, the base
year acted as a disincentive to
companies who had a long-standing
relationship with Ireland.
The abolishing of the base year is
therefore a huge boost to the Irish
operations of MNCs that invested
in Ireland prior to 2004. We believe
that a full volume-based scheme
will help enable those longstanding companies re-establish
and refresh their value proposition
as a cost-effective R&D investment
opportunity. This will help preserve
existing jobs and also allow existing
Irish operations compete for new
R&D activities.
The R&D credit is only one tool in
an overall suite of tax instruments
that encourages the location of
R&D activities in a country. As such,
we also welcome the Minister’s
announcement that he is to initiate
a Consultation Process to consider
the potential merits of introducing
a ‘Knowledge Development Box’
regime in Ireland. This initiative
would enable companies to exploit
the output of their R&D activities
and, together with the abolition
of the base year, will help position
Ireland as a prime location for
innovation activities.
We believe that these
announcements send a very
important message to the
R&D community regarding
the Government’s intention of
further developing an R&D/IP
ecosystem. Attention now turns to
the new Revenue R&D tax credit
guidelines due for release later
this month – in the hope that the
content will provide the certainty
that is required when considering
the location of mobile R&D
investments.
Are we there yet?
watch video
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24
Agri sector
A range of measures are
recommended, focused on rebalancing
the market in favour of long-term land
leasing:
• Income thresholds for relief from
leasing income have been increased
by 50% eg for leases greater than
10 years the exemption increases
from €20,000 to €30,000.
Ronan Furlong
+353 53 915 2421
[email protected]
• New income tax threshold of
€40,000 for leases greater than 15
years.
• Incorporated farm companies
allowed as an eligible lessee and
lower age threshold of 40 years
removed in order to be a qualifying
lessor.
• The abolition of stamp duty on
agricultural leases between 5 and
35 years to active farmers.
• CGT Retirement relief for disposals
outside the family – Land let on
a conacre basis will now qualify
provided land is disposed of by 31
December 2016
• The definition of farmer for CAT
Agricultural relief narrowed such
that only “active” farmers qualify
or some-one who leases the
agricultural assets on a long term
basis to an active farmer.
• Stamp Duty consanginuity relief
extended to 31 December 2017.
To address price volatility:
• Income Averaging of profits
extended from 3 to 5 years and to
farmers who receive income from
on-farm diversification.
To support the transfer of farms to
the next generation the following
measures were introduced:
• CGT Retirement Relief – Land
which has been leased for up to
25 years will now qualify for relief
(previously 15 years).
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An incentive to transfer to the next
generation of farmers?
A significant element of the
Agri-taxation measures in the
budget was to create incentives
to encourage long term leasing of
land and land transfers to enable
farmers, who plan to increase
their milk production access to
additional land. The measures
introduced in to-day’s budget
should go a long way to achieving
these objectives, by making it
attractive for landowners to lease
their land and/or pass it on to the
next generation.
An interesting consequence of
the changes is that the combined
impact of the increase in the long
leasing tax exemption limits and
the CAT Agricultural relief could
mean for example that someone
who receives a gift/inheritance
of farm assets could benefit from
90% Agricultural relief and up to
€40,000 of annual exempt rental
income.
The change in income averaging
which allows farmers to average
their taxable income over a five
year period should deal partly
with the IFA concerns regarding
volatility of farm income. By
increasing the period to 5 years,
the impact of weather and/or
price fluctuations may be lessened.
There were very little changes
apart from land mobility to assist
the dairy sector expansion. Stock
relief remained unchanged and
there were no additional tax relief
for the significant investments that
farmers are likely to make in dairy
equipment and buildings.
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Tax rates
Corporation tax rates
2014
2015
12.5%
12.5%
Other Income (excluding capital gains)
25%
25%
Research & Development (R&D) Tax Credit
25%
25%
€300,000
R&D credit
available on
total spend
Deposit Interest Retention Tax (DIRT)
41%
41%
Capital tax rates
2014
2015
Capital Gains (CGT)
33%
33%
Gifts and Inheritance (CAT)
33%
33%
Income tax rates
2014
2015
Standard
20%
20%
Higher
41%
40%
Income tax bands
2014
2015
Income @
20%
20%
Single/Widowed (not a principal child carer)
€32,800
€33,800
Single/Widowed (principal child carer)
€36,800
€37,800
Married Couple (one income)
€41,800
€42,800
Married Couple (two incomes)
€65,600
€67,600
41%
40%
Trading Income (including certain dividends)
Research & Development (R&D) Volume Threshold
Balance @
Contents
Base year
restriction
eliminated
Down
1%
UP
€1,000
UP
€2,000
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27
Tax rates
Income tax credits
2014
2015
Single Person (not a principal child carer)
€1,650
€1,650
Single Person (principal child carer)
€3,300
€3,300
Married
€3,300
€3,300
Employee Tax Credit
€1,650
€1,650
2014
2015
%
%
10.75%
10.75%
4%
4%
Class S1 - proprietary and non executive
directors, not insurable under Class A
%
%
Employer
nil
nil
Employee
4%
4%
2014
2015
Income Exemption Threshold
€10,036
€12,012
First €12,012 [2014: €10,036]
2%
1.5%
€12,013 to €17,576 [2014: €10,037 to €16,016]
4%
3.5%
€17,577 to €70,044 [2014: Over €16,016]
7%
7%
-
8%
10%
11%
PRSI
Class A1 - most employed persons:
(€356 per week or more)
Employer
Employee - employment income
Universal Social Charge
Over €70,044
Over €100,000 (self-assessed income only)
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Tax rates
Value Added Tax (VAT)
2014
2015
Standard
23%
23%
13.5%
13.5%
Hospitality
9%
9%
Exports
0%
0%
2014
2015
Certain Stocks and Shares
1%
1%
Private Residential Property:
Up to €1,000,000
Any excess over €1,000,000
1%
2%
1%
2%
Non-residential property
2%
2%
Reduced: land and buildings,
building services, heating and electricity,
waste disposal, car hire
Stamp duty
Carbon tax
No increase to general Carbon Tax rate at €20 per tonne. Carbon Tax
introduced on phased basis for solid fuel.
Local property tax
2014
2015
0.18% of market value up to €1m
Some local councils have exercised
their ability to reduce the tax due by
up to 15%.
0.25% of any excess over €1m
Will operate over 12 month period
Motor tax
2014
2015
No changes announced
No changes announced
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