Highlights

Budget 2019 William Fry

12.5% Corporation Tax Rate

The Minister reiterated the Government's commitment to the 12.5% corporation tax rate which is a key feature of Ireland's "broad stable tax base". There was recognition that the international tax regime is constantly changing and that Brexit poses the biggest "political, economic and diplomatic challenge of our generation".  The Minister stressed that Ireland will remain at the heart of Europe and open to the world.  

Exit Tax

A new Anti Tax Avoidance Directive (ATAD) compliant exit tax regime will be introduced from midnight on 9 October 2018. The exit tax regime had an implementation deadline of 1 January 2020 under ATAD but has been introduced early to demonstrate Ireland's commitment to implementing the ATAD according to the Minister. An early announcement of the intended exit tax rate had been flagged in the Tax Strategy Group report issued by the Department of Finance in July 2018. However, the implementation of the new regime with immediate effect has come as a surprise to many.  While Ireland already has an exit tax regime in place, it was not as broad as its ATAD counterpart. The new regime will tax unrealised capital gains at a rate of 12.5% where companies migrate or transfer assets offshore such that they leave the scope of the Irish tax system. 

Controlled Foreign Company (CFC) Rules

As expected, CFC rules will be introduced from 1 January 2019 which will be in line with the ATAD. These rules are an anti-abuse measure which are designed to prevent the diversion of profits to offshore entities in low or no tax jurisdictions and will be provided for in the Finance Bill.

Transfer Pricing

The Minister has committed to review and update transfer pricing rules in 2019 to ensure they are in line with best practice. This follows the public consultation on the Coffey review which made a number of recommendations which would significantly alter the application of the transfer pricing rules in Ireland.

Rainy Day Fund

The Minister recognised that Ireland is a small open economy that is disproportionately affected by changes in the international economy. A "Rainy Day Fund" of at least €1.5bn will be established to further protect the economy and the national finances from economic shocks. 

SME Key Employee Engagement Programme (KEEP)

Last year following a public consultation and consultation with the European Commission to ensure State aid rules were complied with the Minister introduced a new share-based remuneration incentive and it is hoped that it will facilitate the use of share-based remuneration by "unquoted SME companies" to attract and retain key employees. Gains on the exercise of KEEP share options are liable to capital gains tax (CGT) (currently 33%) rather than income tax, USC and PRSI (currently 52%+). Changes introduced to increase the attractiveness of the KEEP scheme and to support SMEs in a competitive market. The changes announced include increasing the ceiling on annual market value of share options granted to match salary, replacing the 3 year-year limit with a lifetime limit and increasing the maximum amount of share options which can be granted to €300,000.

Rate of VAT on Tourism Activities

The 9% VAT rate for the hospitality sector is to be increase to 13.5% with effect from 1 January 2019.

Employment and Investment Incentive Scheme (EIIS) 

A package of measures is to be included in Finance Bill 2018 to increase the efficiency and effectiveness of the EIIS with the intention of providing certainty to businesses to enable them to plan for future.

Crowdfunding

It was announced that steps will be taken with a view to regulating the industry. In addition, a review of certain tax implications of crowdfunding will take place, such as the application of withholding tax on peer to peer lending.

Vehicle Registration Tax (VRT)

VRT relief for hybrid vehicles will be extended until end of 2019. A 1% surcharge for diesel vehicles across all VRT bands will also be introduced.

Extension of 0% Benefit in Kind (BIK) Rate for Electric Vehicles

The 0% BIK rate for electric vehicles is being extended for a period of 3 years, with a cap of €50,000 on the original market value of the vehicle. 

For further information on Budget 2019, please contact Brian Duffy or your usual William Fry Tax contact.