Highlights

Brexit Package

The Minister emphasised that the most pressing and immediate risk to the Irish economy is the increasing likelihood of a no-deal Brexit scenario for which he has proposed a €1.2 billion package. For example, in the event of a no deal Brexit, €650 million will be allocated to the most affected sectors such as agriculture, enterprise and tourism. The Minister also emphasised that although the supports allocated in the package should be sufficient, given the uncertainty of the situation the Government stands ready to do more.

Rainy Day Fund

A €1.5 billion rainy day fund was established last year to protect the economy and national finances from economic shocks (Rainy Day Fund). The Minister recognised that if the impact of a no deal Brexit is more severe than forecast, he will be prepared to use resources that would otherwise be dedicated to the Rainy Day Fund. He committed that €1.5 billion from the Ireland Strategic Investment Fund will be transferred to the Rainy Day Fund.  However, given that a no deal Brexit is more likely, the Minister has decided not to transfer an additional €500 million from the Exchequer into the Rainy Day Fund as was originally planned.

Climate Change

While Brexit represents the most immediate economic risk, the Minister emphasised that climate change is the most substantial long-term challenge facing the Irish economy. He committed to growing the economy while reducing its environmental impact. The Climate Action Plan will be supported by the climate related National Development Plan investment of €8.1 billion and a further €13.7 billion of investment by State companies. Carbon tax is increased by €6 to €26 per tonne. The 1% diesel surcharge introduced in 2018 will be replaced with a nitrogen oxide (NOx) emissions-based charge that will apply to all passenger cars registering for the first time in Ireland from 1 January 2020. VRT relief for hybrid vehicles and the 0% benefit in kind rate on electric vehicles will be extended to 2020. 

12.5% Corporation Tax Rate

Ireland's competitive corporation tax rate of 12.5% remains unchanged.

Exit Tax

In line with the Finance Bill 2019 and the Government's commitments under the Anti-Tax Avoidance Directive, technical amendments will be made to the exit tax rules introduced in 2018 to ensure they function "as intended". The exit tax rules aim to tax unrealised capital gains at a rate of 12.5% where companies migrate or transfer assets offshore such that those assets leave the scope of the Irish tax system.

Transfer Pricing

As expected, and following on from the Public Consultation undertaken earlier this year, the Minister announced that Ireland's updated transfer pricing rules will apply from 1 January 2020.  See Business for further detail on this measure.

Key Employee Engagement Programme (KEEP)

The Minister announced changes to the Key Employee Engagement Programme (KEEP) so that it will now apply to company group structures and will also allow for greater flexibility for employees to move within such structures. He also proposed amending the rules of the scheme to allow for part-time and family-friendly working arrangements for KEEP employees.

Employment and Investment Incentive (EII)

The Minister announced the continuation of the EII scheme subject to reform by way of allowing for full income tax relief to be provided in the year of investment rather than splitting it over years one and four as has been the case up to now. He also intends to increase the annual investment limit for the incentive to €250,000 and provide for a new €500,000 annual investment limit being introduced for those investors who are prepared to invest in EII for ten years or more. 

R&D Tax Credit

The research & development tax credit will be increased from 25% to 30% for micro and small companies and will allow for an improved method of calculating the limit on payable credit. Changes are also being introduced in that micro and small companies will be able to claim the credit on qualifying pre-trading R&D expenditure before commencing to trade. While pre-trading they can then offset the credit against VAT and payroll taxes. The current limit applying to third level institutes of education will be increased for all claimants from 5% to 15%.

Special Assignee Relief Programme (SARP) and the Foreign Earnings Deduction (FED) 

Both schemes will be extended until the end of 2022.

Stamp Duty

With effect from midnight on 8 October 2019:

  • the rate of stamp duty applicable to non-residential property transactions will increase by 1.5% to 7.5%. Normal transitional arrangements will apply for transactions in process; and
  • stamp duty at the rate of 1% will be applicable where a scheme of arrangement involving a so called ‘cancellation scheme’, in accordance with part 9 of the Companies Act 2014, is used to effect the sale of a company.

Tax Compliance

The Minister announced a two-stage process to increase tax compliance and the tax yield by targeting the dividend withholding tax (DWT) regime. The first stage is an increase in the rate of DWT from 20% to 25% from 1 January 2020. The second stage will be the introduction by the Revenue Commissioners of a modified DWT regime from 1 January 2021.  The modified DWT regime will use real-time data collected under the newly modernised PAYE system and will allow a personalised rate of DWT to be applied to each individual taxpayer, based on the actual rates of tax that they pay.

Irish Real Estate Funds and Real Estate Investment Trusts

The Minister emphasised that the Revenue Commissioners had identified IREFs engaging in "aggressive behaviour" to avoid tax. New anti-avoidance measures will be introduced from midnight on 8 October 2019 including new limitations on interest expenses to prevent over-leveraging and a measure to combat the artificial avoidance of gains on redemption of IREF units.

Targeted amendments to the Real Estate Investment Trust (REITs) regime will also come into effect from midnight on 8 October 2019 to ensure that an "appropriate level of tax" is paid on property gains made by REITs.

For further information on Budget 2020, please contact Brian Duffy or your usual William Fry Tax contact.