The Irish Minister for Finance, in stressing the importance of the financial services sector, introduced a number of measures in the recent Finance Act to support the financial services and insurance sectors generally and to also attract additional foreign direct investment to Ireland.  

Levy on life assurance premiums

The Act amended the 1% levy on life assurance premiums (for Irish based risk), which was introduced in the Finance Act 2009 meaning the exclusion from the existing levy of all pension business and reinsurance business.  As the amendment takes effect from 2010 onwards, there will be no retrospective effect for 2009.

In addition, the Act brings forward the date of the payment of the levy by an insurer from the end of the month to the 25th of the month after each quarter end.

Levy on Health Insurers

The Act makes significant increase in the new stamp duty levy on health insurers introduced in 2009.  The proposed increase for insured persons aged 18 and over is from €160 to €185.  For those under 18 it is from €53 to €55.

Other Key Amendments

The Minister has made a number of enhancements to the foreign tax credit and dividend repatriation regimes, which is an important consideration for companies seeking to locate their holding company in Ireland.  Some of the welcome changes include:

• The rules granting the 12.5% tax rate (trading income) to foreign dividends paid out of underlying trading profits are to be extended to include dividends from non-trading/non-EU locations where the company paying the dividend is quoted on a recognised stock exchange in another EU member state or a tax treaty country;
• Simplification of the rules identifying the underlying profits out of which dividends are regarded as being paid for the purposes of determining the tax rate to apply to those dividends; and
• Exemptions from corporation tax of foreign dividends received by portfolio investment companies (for companies holding voting rights of less than 5%), where the dividends form part of the trading income of the company.

Amendments made for foreign branch tax credits

The Act allows unused foreign tax credits to be carried forward for set off against Irish corporation tax on foreign branch income in the future years.  This is a welcome change and allows the foreign branch tax credit scheme to be put onto a similar footing as excess tax credits on dividends arising from foreign companies. Previously such foreign tax credits could only be used as an expense to increase the loss as opposed to being credible against tax charged.

Transfer Pricing

The Finance Act contains transfer pricing rules to apply for accounting periods beginning on or after 1 January 2011.  While Ireland did not have dedicated transfer pricing legislation, there was a requirement for transactions between associated entities to be entered into on an “arm’s length basis”.  The key features of the proposed regime are:

• The legislation will cover domestic or international trading transactions (effectively where income arises at 12.5%) entered into between associated entities 
• The regime introduces a grandfathering concept whereby contracts/arrangements/terms and conditions agreed and entered into before 1 July 2010 will not fall within the new legislation
• Certain exemptions allow small and medium sized enterprises (“SME”) to sit outside of the new legislation.  The numerical test to meet the requirement of an SME is that the overall enterprise (i.e. group at a global level) must have less than 250 employees and either a turnover of less than €50 million or gross assets of less than €43 million.
• There is no detailed documentation requirement.  Supporting documentation for pricing is to be prepared on a timely basis.

Favourable income tax incentives for EEA employees/secondees

The Finance Act introduced income tax incentives to non-Irish EEA residents who take up minimum one year posts in Ireland.  The Act extends an existing “remittance basis” of taxation relief (remittance basis of taxation relief provides that foreign source income will be liable to Irish tax only if it is remitted to Ireland) to include EEA nationals (other than Irish nationals) who come to work and live in Ireland after 1 January 2010.  (This relief was previously only available to persons resident in Ireland who, prior to becoming resident in Ireland, were resident in a non-EEA State with which Ireland has a double taxation treaty).  The minimum period of residence to qualify for the favourable Irish tax treatment is being reduced from three years to one year.

The Irish income tax exposure for the employee will be limited to the higher of:

• Total employment earnings and benefit received in or remitted to Ireland;
• The first €100,000 plus 50% earnings and benefits in excess of €100,000.