Budget 2015 was announced on 14 October 2014. It is seen as the first non-austerity budget in recent years as evidenced by cuts in the higher rate of income tax, stimulus reforms to the construction and agriculture sectors and the announcement of an enhanced intellectual property regime for companies. Its primary aim is to set out a Road Map for Ireland’s Tax Competitiveness now and into the future to, in the words of Minister Noonan, “reposition Ireland so as to be best able to reap the benefits, in terms of sustainable foreign direct investment, of a changed international tax landscape”.
See below for the key measures of Budget 2015 from a tax perspective.
- Corporate Tax: The Minister reiterated Ireland’s steadfast commitment to the 12.5% rate of corporation tax.
- Corporate Tax Residency Rules: The elimination of the “double Irish” structure has been announced. From 1 January 2015 all companies incorporated in Ireland will be tax resident in Ireland. Existing companies to phase out the scheme by the end of 2020.
- Research & Development Tax Credit: The 2003 base year restriction will be removed from 1 January 2015.
- Road Map for Ireland’s Tax Competitiveness: Publication of a Road Map for Ireland’s Tax Competitiveness including the intention to introduce a “Knowledge Development Box” regime, the removal of the 80% restriction on the use of capital allowances for specified intangible assets, and enhancements to the SARP, EII and FED regimes.
- Start-Up Exemption: The 3 year relief for start-up companies will be extended to new business start-ups in 2015.
- Foreign Earnings Deduction (FED): The FED has been extended until the end of 2017 and conditions to access the deduction have also been improved.
- Special Assignee Relief Programme (SARP): The SARP has been extended until the end of 2017 and the criteria to access the relief have also been extended.
Capital Gains Tax (CGT) Relief: The current 7 year CGT exemption won’t be extended and will cease on 31 December 2014.
- 80% “Windfall Tax”: With effect from 1 January 2015, the 80% “windfall tax” will be abolished.
- Home Renovation Incentive Scheme: The “Home Renovation Scheme” income tax relief has been extended to landlords.
- Rates & Bands
The standard rate band for income tax has been increased by €1,000 from €32,800 to €33,800 for single individuals and from €41,800 to €42,800 for married one earner couples. The marginal rate of income tax will decrease from 41% to 40%. These changes take effect from 1 January 2015.
Rates have been overhauled with effect from 1 January 2015 with incomes of €12,012 or less exempt and earnings of €0 to €12,012 subject to USC at 1.5%, €12,013 to €17,576 at 3.5%, €17,577 to €70,044 at 7% and €70,044 to €100,000 at 8%. Also, PAYE income in excess of €100,000 is subject to USC at 8% and self-employed income in excess of €100,000 at 11%.
- Artists’ Exemption
The artists’ exemption threshold will increase from €40,000 to €50,000 with effect from 1 January 2015 and the exemption is extended to non-resident artists (i.e. to individuals who are resident or ordinarily resident in another EU Member State or in another EEA State.
- Foreign Earnings Deduction (FED)
The FED is a tax deduction for individuals temporarily working in certain foreign countries. It is now extended until the end of 2017 and conditions to access the deduction have been improved by the addition of further qualifying countries Chile, Mexico and some countries in the Middle East and Asia, a reduction in qualifying days from 60 to 40, the reduction of minimum stay in a country to 3 days and travel time included as time spent abroad. It is hoped that these amendments will support Irish businesses in accessing foreign export markets.
- Special Assignee Relief Programme (SARP)
The SARP has been extended until the end of 2017 and conditions to access the relief have been improved with the upper salary threshold and exclusion of work abroad both removed, the residency requirement amended to only require Irish residency and requirement to have been employed abroad by the employer reduced from 12 to 6 months. The Minister hopes that the improved SARP regime will compete to win FDI through the Government’s 10 Point Road Map for Ireland’s Tax Competitiveness.
- Employment and Investment Incentive (EII)
Having been removed from the High Earners’ Restriction for 3 years in the last Budget, subject to EU approval, EII is now being amended to raise company limits, increase the holding period for shares by 1 year and include certain medium-sized companies. In addition, hotels, guesthouses and self-catering accommodation will remain eligible for EII for a further 3 years and operation and management of nursing homes will be included for 3 years.
- Water Charges
Relief at the standard rate (currently 20%) will be provided in arrears on water charges paid up to a maximum of €500 per annum (i.e. maximum relief available €100).
- Seed Capital Scheme / Start Your Own Business now rebranded “Start-Up Relief for Entrepreneurs” (SURE)
Previously unemployed individuals setting up a qualifying unincorporated business can avail of an income tax exemption up to a maximum of €40,000 per annum for two years – this relief was originally available to those unemployed for a minimum of 15 months prior to set up and this is being extended to up to 2 years.
- Farming Taxation
A number of measures are being introduced with regard to passing on agricultural property with capital gains tax relief being introduced for farm restructuring and extended for retirement purposes to include broader lease arrangements; supporting stamp duty reliefs being provided; and the availability of capital acquisitions tax agricultural relief on gifts and inheritances involving agricultural property to be restricted to active farmers and certain lease arrangement.
- Rent a Room Relief
The threshold for exempt income earned under this scheme is being increased from €10,000 to €12,000 per annum with effect from 1 January 2015.
- Pension Levy
As indicated in the last Budget, the pension levy will be reduced to 0.15% for 2015 and this levy will cease at the end of 2015
A Road Map for Ireland’s Tax Competitiveness
– The Government published a suite of measures in the “Road Map for Ireland’s Tax Competitiveness” to maintain Ireland as a sustainable foreign direct investment jurisdiction. There are ten key elements identified in the Road Map. A summary of the detailed commitments and actions is set out below:
- Corporation Tax Rate
– The strong commitment to the 12.5% corporation tax rate has been reiterated.
- Corporate Tax Residency Rules
– The elimination of the “double Irish” structure has been announced.
– From 1 January 2015 all companies incorporated in Ireland will be tax resident in Ireland.
– Existing companies to phase out this scheme by the end of 2020.
- Intellectual Property Regime
– The Government intends to introduce a “Knowledge Development Box” income-based tax regime for intangible assets similar to Patent Box regimes in other countries.
– A public consultation process will be launched to obtain views on the operation of the regime which is expected to be introduced in 2015.
– The 80% restriction on the use of capital allowances for expenditure incurred on specified intangible assets will be removed.
– The definition of specified intangible assets will be amended to include customer lists.
- Research and Development Tax Credit Regime
– The 2003 base year restriction will be removed from 1 January 2015.
- Special Assignee Relief Programme
– The relief is to be extended until the end of 2017.
– The upper salary threshold and the exclusion of work abroad are both to be removed.
– The residency requirement is to be amended to only require Irish residency.
– The requirement to have been employed abroad by the employer will be reduced from 12 to 6 months.
- Employment and Investment Incentive (“EII”) Scheme
– The amount of finance that a company can raise under the EII scheme will be increased to €5m annually and €15m over a company’s lifetime. The holding period will be increased by 1 year.
– The EII scheme will be extended to include investment in medium-sized enterprises in non-assisted areas, the management and operation of nursing homes and internationally traded financial services.
– Investment in hotels, guest-houses and self-catering accommodation will also qualify for the EII scheme for a further 3 years.
- Foreign Earnings Deduction (“FED”)
– The FED will be extended until the end of 2017.
– Conditions to access the deduction will be improved by the addition of further qualifying countries (Chile, Mexico and certain countries in the Middle East and Asia).
– The number of qualifying days will be reduced from 60 to 40.
– The minimum stay in a country will be reduced to 3 days and travel time will be included as time spent abroad.
– It is hoped that these amendments will support Irish business in accessing foreign export markets.
- Competent Authority for Transfer Pricing
– Revenue’s ability to deal with international transfer pricing disputes will be strengthened by assigning new resources to Revenue in this area.
- Expansion of Tax Treaty Network
– The continued expansion of Ireland’s tax treaty network is recognised as a key factor in enhancing Ireland’s attractiveness as a location for foreign investment.
- Open and transparent tax regime
– Ireland will maintain its commitment to ensuring an open and transparent tax regime in line with the International Tax Strategy published by the Government last year.
Start up exemption
– The 3 year relief for start-up companies will be extended to new business start-ups in 2015. A review of the operation of the relief will take place in 2015.
Energy efficient equipment
– The accelerated capital allowances available for energy efficient equipment will be extended for three years.
– The temporary 9% reduced rate of VAT, applicable to the tourism sector, will continue to apply.
Capital Gains Tax (CGT) Relief
- As anticipated, the CGT exemption introduced in Finance Act 2012 and extended in Finance Act (No. 2) 2013 for properties purchased between 7 December 2011 and 31 December 2014 and held for seven years, is not being extended past 31 December 2014. The view is that this tax incentive “has achieved its objective of increasing property transactions and is therefore no longer needed”.
Home Renovation Incentive Scheme
- The Home Renovation Incentive Scheme was introduced in Budget 2014 to provide relief to homeowners who carry out certain renovation and improvement works to their principal private residence. The relief consists of an income tax credit at a rate of 13.5% on qualifying expenditure carried out by qualifying contractors (subject to a minimum spend of €5,000 and a maximum spend of €30,000), split over 2 years following the year in which the work is carried out.
- Budget 2015 has extended this relief to apply to landlords who are liable to income tax. Relief will now be available for landlords in respect of works carried out from Budget night until 31 December 2015.
Living City Initiative
- The Living City Initiative, which was introduced in Budget 2013 and extended in Budget 2014 to apply to all 6 Irish cities, is an incentive designed to encourage families to move back into city centres by providing tax relief in respect of the refurbishment of historic building in certain urban areas. The relief is given by allowing home owners to offset the entire cost of renovation against their income tax over a ten year period.
- The initiative is subject to EU State Aid approval. The Minister announced today that the discussions with the European Commission are at an “advanced stage” and is anticipated to be rolled out in early 2015.
Abolition of 80% “Windfall Tax”
- With effect from 1 January 2015, the 80% “windfall tax” will be abolished. The “windfall tax” applies to certain profits or chargeable gains arising on the disposal or development of land, where such profits or gains are attributable to planning decisions made since October 2009. From 1 January 2015, the standard 33% CGT rate and other standard tax arrangements will apply to such development land profit and gains.
DIRT Refunds for First Time Buyers
- In a move designed to support first time house buyers, the Minister introduced a refund of Deposit Interest Retention Tax (DIRT) on savings used by individuals towards paying a deposit on a first home. The DIRT refund provisions, which apply from Budget night until 31 December 2017, will be capped to apply only to savings up to a maximum of 20% of the house purchase price.
- Rent-a-room relief is an income tax exemption for individuals where he/she lets a room (or rooms) in his or her sole or main residence as residential accommodation, subject to certain conditions. The maximum income which could be exempted under this scheme was previously €10,000 per annum but this threshold is to be increased to €12,000 per annum.