Why choose Ireland for Holding Companies?

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Holding Companies – Why chose Ireland for Holding Companies?Ireland is an attractive place to set up a Holding Company for many reasons as outlined below.

The main advantage of setting up a Holding Company in Ireland is the introduction of the new participation exemption which exempts qualifying distributions received by a holding company from its subsidiary from Corporation Tax in Ireland. Prior to this, the tax rate of dividends received from foreign subsidiaries was reduced to 12.5% in certain cases so the introduction of the new participation exemption is welcomed.

We have outlined the main benefits of setting up a Holding Company in Ireland below:

  • Dividend income between two Irish companies is exempt from tax in Ireland.
  • As mentioned above, there is a new participation exemption for foreign dividends which exempts qualifying distribution from corporation tax. The key conditions of this participation exemption are as follows:
    • Resident in and EEA state or a country which has a DTA with Ireland.
    • The recipient of the dividend must hold at least 5% of the shareholding of the paying company for an uninterrupted period of 12 months.
    • It must not be tax deductible in any other jurisdiction.
    • Made out of profits of the paying company.
    • The company must opt in for this exemption on a yearly basis.
  • There is also a participation exemption on the disposal of shares in a trading subsidiary company on shareholdings of at least 5 years that have been held for at least 12 months.
  • Dividend Withholding Tax (DWT) exemptions:
    • Group exemption – exemption from DWT if the Holding Company is a 51% parent of the paying company.
    • EU Parent Subsidiary – Provides an exemption from DWT on the dividends between parents and subsidiaries. The parent company must own 5% of the shares during an interrupted period of 2 years.
    • DTA DWT exemptions.
  • The tax rate for trading companies in Ireland is 12.5% and for passive income is 25%.
  • Expenses of managing a holding company are generally tax deductible in Ireland.
  • English speaking country.
  • Part of the EU.

CFC Rules Ireland

CFC rules prevent the artificial diversion of profits from controlling companies to CFCs (offshore entities in low-tax or no-tax jurisdictions). The Irish regime can be summarised as:

  • The charge applies to undistributed income of a CFC arising from non-genuine arrangements put in place essentially to avoid tax.
  • Such undistributed income is attributed for taxation purposes to the Irish controlling company, or connected company, where that company has been carrying out significant people functions (“SPF”) in Ireland.
  • There are exemptions for CFCs with low profits or low profit margin or where the CFC pays a comparatively higher amount of tax in its territory that it would have paid in Ireland.
  • The CFC rules will not apply where the arrangements under which SPFs are performed have been entered into on an arm’s length basis or are subject to transfer pricing rules.
  • Unless an exemption applies, undistributed income, with an Irish nexus by reference to Irish SPFs, which has been artificially diverted from Ireland, will fall to be taxed in Ireland.
  • To prevent double taxation, a credit will be available against the CFC charge for foreign tax paid on the same income.

We can assist on all aspects of setting up a Holding Company in Ireland whether it is incorporating the company, tax compliance and advice, or the preparation and audit of financial statements. If you wish to discuss, please contact us.

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New EU VAT Rules on Live Streamed & Virtual Events from 1 January 2025

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New EU VAT Rules on Live Streamed & Virtual Events from 1 January 2025

What are the new EU VAT changes?

Previously, VAT was applied to live-streamed and virtual events based on the location of the event itself, regardless of where the viewers were located or the status of the customer.

With effect from 1 January 2025, the provision of services such as live streaming of cultural, artistic, sporting, scientific, educational events, as well as online courses and conferences, provided to private individuals (i.e. not VAT registered), will now be subject to VAT where the customer is located.

The applicable VAT treatment for live streamed and virtual events will now be as follows:

  1. For Business-to-Consumer (B2C) supplies – the supplier will now be responsible to collect and remit VAT in the EU country where the customer is located. A pan-European €10,000 registration threshold applies for EU and NI businesses, and a nil threshold applies for non-EU established businesses.
  2. For Business-to-Business (B2B) supplies – the EU business recipient will continue to self-account for reverse charge VAT in their EU country of establishment.

This change is intended to bring the VAT treatment of virtual events into alignment with that of other telecommunication, broadcasting and electronically (TBE) supplied services (including streaming services or the delivery of other pre-recorded content).

What is an “Event” for VAT purposes?

To determine whether a business’s service offering falls within these new VAT regulations, it is necessary to determine what constitutes an “event” for VAT purposes.

Although EU VAT legislation does not clearly define the term “event,” the interpretation of this concept has been subject to review by both the Advocate General, the VAT Committee and the Court of Justice of the European Union (CJEU) with regards to the case of Skatteverket v Srf konsulterna AB CJEU (Case C-647/17)(March 2019).

The CJEU’s judgement in this case found that five-day accounting and management seminars provided by a Swedish company to private individuals in other EU Member States were taxable in each of those Member States as an admission to an “educational event” and subject to VAT where the customer was located.

In arriving at this decision, the CJEU considered a range of factors to determine what qualifies as an “event” for VAT purposes and these include:

  • Short Duration – An event is more limited in scope than an ongoing activity. An event typically lasts from a few hours to, at most, seven consecutive days. Longer-term courses/ training, which span weeks or months, are less likely to qualify as events.
  • Uninterrupted Activity – If a course runs over several consecutive days, it is more likely to be considered an event. A brief break in the schedule does not automatically disqualify it as such. In contrast, courses spread over several weeks with multiple breaks are less likely to be classified as events, falling instead under the category of training activities.
  • Planning – Events are typically planned in advance, with a predefined agenda and specific subject matter. This distinguishes them from more open-ended activities that may offer a general framework for education
  • Payment Method – The payment method – whether a subscription, periodic fee, or ticket – does not affect whether an activity qualifies as an event.

Businesses should carefully assess whether their services meet the criteria for an “event” under EU VAT regulations, taking into account factors like duration, continuity, planning, and the nature of the service.

What does this mean for providers of online events?

The VAT treatment for Business-to-Consumer (B2C) live streamed/virtual events has undergone significant changes, now requiring that VAT be due in the country where the customer is located. This shift will likely lead to increased compliance costs for businesses offering these services.

Suppliers of these events will now need to identify the location of their customers, and they may need to register and charge VAT in each EU country where their final customers reside (subject to relevant registration thresholds being exceeded).

There is a VAT registration simplification available, known as the VAT One Stop Shop (VAT OSS), to facilitate one single EU-wide registration to remit output VAT on supplies and to efficiently manage the VAT reporting for these services.

However, suppliers will face challenges in determining and monitoring the various applicable VAT rates across the EU for their service offerings which may impact pricing strategies, contracting processes, and invoicing procedures.

The impact on cross-border B2B supplies should be less significant, as business customers can continue to self-assess for VAT on the reverse charge basis in their country of establishment.

As the landscape for VAT compliance continues to evolve, seeking professional advice will be essential to navigating these changes effectively.

Should you require any assistance in this area, please contact us.

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Employee Share Incentive Schemes

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Employee Share Incentive Schemes

Employee share incentive schemes can serve as an effective alternative to bonuses. They not only offer tax savings for employees, but also promote greater participation and loyalty within the company. There is also a tax saving of employer PRSI for the employer where remuneration is by way of equity participation when compared to cash or other benefits.

Depending on the type of scheme, employees might need to hold onto the shares for several years before they can enjoy the tax benefits.

One of the key considerations when implementing a share plan is the valuation of the shares. Accurate valuation from the outset is crucial to ensure the proper taxation of the awards, such as growth shares and restricted shares.

In this article we consider the following type of employee share incentive schemes:

  1. Share option schemes
  2. Restricted Stock Units (RSUs)
  3. ‘KEEP’ share option schemes
  4. Growth/Flowering Shares
  5. Restricted Shares

1. Share Options

This is an option granted by a company to its employees to subscribe for shares at a pre-determined price at some point in the future.  The option must be exercised in order for the employee to get beneficial ownership of the share. Prior to exercise, the employee does not have any rights relating to the shares. The employee pays taxes on any profit made when they eventually exercise the shares. There’s a deadline to exercise this option (usually 7 years) to avoid tax issues on granting. The burden for withholding tax is now placed on the employer for all options exercised on or after the 1st of January 2024. CGT is chargeable on any subsequent disposal of the shares.

2. Restricted Stock Units (RSU’s)

This scheme awards free shares to employees, and usually vest after a set period (can be time-based or performance-based). Employees are taxed on the market value of the shares at vesting, similar to a salary, and the employer withholds the tax. There are no tax implications at the grant. Conditions outlined in a plan document must be met before shares are issued.

3. Key Employee Engagement Programme (KEEP)

This is a tax advantageous share option scheme introduced specifically for certain qualifying SME companies for their employee or directors. Employees do not pay taxes when they exercise the option to buy shares. Instead, they pay capital gains tax (33%) when they eventually sell the shares. There are several conditions to be satisfied which can make KEEP challenging, including that options must be granted at market value. However, due to the tax benefits, KEEP is worth considering when deciding on what plan to utilise.

4. Growth/Flowering Shares

Growth shares are a special class of ordinary shares that generally have a low or nil value until a certain target or hurdle is reached by the business. The growth share is subject to income tax, USC and PRSI on award and must be valued for tax purposes. This type of share award can be attractive where the owners wish to share in future growth in the value of the company. CGT will be payable on any growth in value.

5. Restricted Shares

 Restricted shares are subject to income tax, USC and PRSI at the date of award. There is an abatement on the taxable value available under Section 128D which reduces the taxable value by 10% per year of restriction up to a maximum of 60%. There is a claw back of income tax if restrictions lifted or varied before the end of the restricted period. CGT will be payable on any growth in value.

If you are considering implementing an employee share incentive scheme and require advice on choosing the right plan to implement, please do not hesitate to contact us.

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Share Scheme Reporting Obligations

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Share Scheme Reporting ObligationsThere are several annual reporting obligations for employers and trustees who operate share schemes for their employees which are due by 31 March following year end.

The return to be filed is dependent on the type of share award or share option involved.

Form Name Plan Type
ESA                                                          Restricted Share Units (RSUs) – Share & Cash Settled

Discounted/Free/Matching Shares

Employee Share Purchase Plans (ESPP)

Restricted Shares

Convertible Securities

Forfeitable Shares

Phantom Shares

Stock Appreciation Rights

Growth/Hurdle/Flowering Shares

Other shares
RSS1 Share options and other rights
KEEP1 KEEP share options
ESS1 Approved Profit Sharing (APSS) Schemes
SRSO1 Save As You Earn (SAYE) schemes
ESOT1 Employee Share Ownership Trust (ESOT) schemes

Revenue are actively reviewing Share Scheme Reporting Forms and raising enquiries where there are discrepancies between the Forms and information reported via PAYE and/or employees personal tax reporting.

It is therefore more important than ever that employer Share Scheme Reporting is completed accurately and on a timely basis.

Deadline

The annual return must be filed on or before 31 March.

Contact us

If you require assistance with the preparation and submission of any of these returns, please contact us.

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Everything you need to know about Pillar Two

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Everything you need to know about Pillar Two

The Irish Revenue have now implemented the Pillar Two tax rules which may have consequences for Irish companies who are part of a multinational group.

To determine whether your company may be liable to file additional tax returns and pay a top up tax, we have prepared FAQs to provide you with the key characteristics of the Pillar Two Tax rules.

Who do the Pillar Two Rules apply to?

Multinational groups with an annual revenue exceeding €750 million. The test is based on the two of the four Fiscal Years immediately preceding the tested Fiscal Year.

What do these groups have to do?

The pillar 2 rules require these groups to pay minimum corporation tax of 15% on income earned in each jurisdiction in which they operate

If the tax rate is lower than 15% in a jurisdiction what must they do?

If the effective tax rate in a jurisdiction is below 15%, the new top-up tax may be levied.

If a top up tax is required, it is collected in one of three ways;

  1. Income Inclusion Rule:
  2. Qualified Domestic Top-up Tax:
  3. Undertaxed Profit Rule

These options can be discussed in detail if the Pillar Two rules apply to your group.

When do these rules come into effect?

Ireland has introduced the IIR and QDTT with effect for accounting periods beginning on 1 January 2024.

The UTPR will take effect for accounting periods commencing from 1 January 2025.

When should I register for the Pillar Two Taxes?

Within 12 months of the end of the first fiscal year in which the entity is subject to tax.

For example, a company who will be liable to the IIR and QDTT for 2024, must be registered for those taxes by 31 December 2025.

If they are then liable to UTPR, they must register by 31 December 2026.

What reporting obligations does a company have if they are within scope of the Pillar Two Rules?

They must submit a top up tax information return to Revenue within 15 months of their year-end. For the first year being within scope, this deadline is extended to 18 months.

E.g. a company with a December year end would be required to file a return by 30th June 2026 in their first year, and 30th March thereafter.

Are there any exemptions available from the Pillar Two Rules?

There are safe harbours available that we can discuss if the Pillar Two rules apply to your group.

Please feel free to contact us to discuss these new tax rules if you think they may apply to you.

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Budget 2025 Highlights

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Budget 2025 Highlights

Minister for Finance, Jack Chambers delivered the final Budget today, 1 October 2023. Below we outline the highlights of Budget 2025.

Personal Tax

  • Income Tax Standard Rate Bands increase by €2,000 to €44,000 (single person), with the married single earner band increasing to €53,000, and the married dual income band increasing to €88,000.
  • Personal, PAYE, Earned Tax Credits to increase by €125 to €2,000.
  • Home Carer and Single Person Child Carer Tax Credits will increase by €150 to €1,950 and €1,900 respectively.
  • Incapacitated Child and Blind Person’s Tax Credits will increase by €300 to €3,800 and €1,950 respectively.
  • Small change to the second rate-band of Universal Social Charge which will increase from €25,760 to €27,382. The 4% rate is reducing to 3% from 1 January 2025.
  • Alignment to the tax treatment of Automatic Enrolment Retirement Savings Schemes so that they are similar to that of PRSAs. Employer contributions are tax relieved. Funds grow tax free and a tax-free lump sum can be taken on draw down of the fund up to a maximum of €200,000.

 Enterprise/SMEs

  • Ireland is the only country in the EU which taxes dividends from foreign subsidiaries. It is proposed to introduce a participation exemption for Foreign Dividends to simplify the double taxation relief provisions. Companies will have an option to claim the exemption or continue to use the existing tax and credit relief by way of an election on the company’s annual Corporation Tax return. The exemption will apply for distributions received on or after the 1 January 2025.
  • Capital Gains Tax Relief for Angel Investment to encourage investment in innovative start-ups is to commence shortly. Qualifying investments will be certified by Enterprise Ireland with a minimum investment in new shares of at least €10,000. Relief will apply if shares are held for at least 3 years. A reduced rate of Capital Gains Tax of 16% will apply on a gain of up to twice the initial investment. A lifetime limit of €10m will apply to the relief.
  • A 12-year clawback period for Retirement Relief on disposals to children on businesses valued at over €10m.
  • The various reliefs for Investment in Corporate Trades are being extended for a further two years to 31 December 2025. The €500,000 investor limit on EII investment is being increased to €1m, while it is being increased to €980,000 for SURE investments.
  • The first-year payment threshold for the Research & Development Tax Credit is being increased to €75,000. The first-year payment threshold, which allows for a claim to be repaid in full rather than spread over 3 years.
  • The Section 486C Start Up Relief is currently calculated by reference to the amount of employer PRSI paid – up to €5,000 per employee. It is proposed that amounts paid under Class S will also be considered, subject to a maximum of €1,000 per individual.
  • New relief for up to €1m of expenses incurred on companies on their first listing on a recognised stock exchange in Ireland or the EU/EEA area. The relief is to support companies in the scale up phase of their growth and development.
  • The cumulative tax-free limit for small benefit exemption is being increased to €1,500 and the number of times an employer can provide a benefit is being increased from two to five per annum.
  • An exemption from taxable benefit in kind on the provision of EV home chargers.
  • The CO2 thresholds for claiming capital allowances on business cars is being revised downwards from 2027. An expenditure of €24,000 will be allowable for cars with CO2 emissions of 0-120g/km, a reduced €12,000 for vehicles with emissions of 121-140g/km and no zero for vehicles with CO2 emissions greater than 141g/km.

Agri-Food Sector

  • CAT Agricultural Relief will now require that the donor must meet a 6-year Active Farmer test.
  • The measures for Stock Relief which were due to expire at the end of 2024 are being extended to the end of 2027.
  • 50% Accelerated capital allowances for farm safety equipment.
  • Farmer’s Flat Rate VAT compensation being increased to 5.1%.

 Housing/Cost of Living Measures

  • The Rent Tax Credit is being increased by €250.
  • The deduction for pre-letting expenditure from rental income will be extended for a further three years, to the end of 2027. The deduction is capped at €10,000 per property.
  • The Help to Buy (HTB) scheme is being extended to the end of 2029.
  • The Stamp Duty rate applied where 10 or more residential properties are acquired in any 12-month period is being increased from 2 October 2024 from 10% to 15%. In addition, a 6% rate will apply to residential properties valued excess of €1.5m.
  • A temporary one-year Mortgage Interest Tax Relief introduced last year is being extended for a further year. Relief will be available for the increased mortgage interest paid in 2024 over 2022. The relief is capped at €1,250 per property and applies to mortgages outstanding of between €80,000 and €500,000 on the 31 December 2022 and fully LPT compliant. Relief is at the standard rate.
  • The rate of the Vacant Homes Tax is again increased with effect from 1 November 2024 to 7 times the property’s existing LPT liability.
  • The 9% VAT rate for Gas and Electricity supplies is extended to 30 April 2025.

 VAT

  • The registration thresholds are being slightly increased to €42,500 for the supply of services and €85,000 for the supply of goods from 1 January 2025.
  • The supply and installation of heat pumps is reduced from 23% to 9%.
  • The Farming VAT Flat Rate is being reduced to 5.1% from 1 January 2025.

Other Measures

  • The universal relief of €10,000 to the OMV for vehicles in Category A-D is extended for a further year to end 2025.
  • The Capital Acquisitions Tax thresholds are being increased as follows.
    • Category A threshold €400,000
    • Category B threshold €40,000
    • Category C threshold €20,000
  • Two new audio-visual incentives are being introduced. Both require European Commission approval.
    • A Corporation Tax credit for expenditure on unscripted productions. The credit will be granted at 20% of the expenditure up to a limit of €15m per project.
    • Scéal Uplift for film production up to a maximum expenditure of €20m. This incentive will form part of section 481 Film Relief.

Read our tax team’s analysis of Budget 2025.

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Special Assignee Relief Programme (“SARP”)

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Special Assignee Relief Programme (“SARP”)

The Special Assignee Relief Programme (“SARP”) was introduced in Ireland in 2012 to encourage the relocation of key talent within organisations to Ireland.

The SARP programme provides for income tax relief on a proportion of income earned by employees coming to work in Ireland.  Where certain conditions are satisfied, an individual can make a claim to have 30% of employment income over €100,000 up to €1,000,000 disregarded for income tax purposes.  The relief is available for five consecutive tax years.

In determining whether an individual is entitled to the relief, the amount of compensation, excluding the following items must exceed €100,000:

  • Bonus payments,
  • Benefit-in-Kind including company cars and preferential loans,
  • Share based remuneration,
  • Termination/ex-gratia payments.

The relief only applies to income tax (PAYE) and does not apply for USC or PRSI.

How is relief granted?

SARP relief can be claimed on a real-time basis via the PAYE system, rather than waiting for the tax year-end to make a claim. While claiming SARP relief, an individual is considered a chargeable person for Irish income tax purposes and is therefore required to file a Form 11 tax return for each year of entitlement.

Example:

Francesco arrived to Ireland on 1 January 2024 and meets all the conditions to claim SARP relief. Francesco is single and his base salary is €150,000.

€
Schedule E income 150,000
SARP Relief (15,000)
Taxable income 135,000
 
Total Income tax liability 41,850
Total USC liability 8,503
Total PRSI liability 6,000

Francesco’s marginal income tax rate in Ireland is 40%, so the income tax saving is €6,000 (€15,000*40%).

Other Benefits of SARP

Employees who qualify for SARP relief are also eligible to receive one tax-free home leave trip per annum, including their family. School fees paid by the employer, capped at €5,000 per annum for each child, can also be paid tax-free.

Application Process

Qualifying individuals must complete a SARP 1A application for this relief within 90 days of arrival in Ireland.  The employee must have a PPSN to complete the application. They must also have registered their employment with Revenue through their MyAccount before approval for SARP will be issued.  From 1 January 2024, the SARP 1A application can be certified through an online e-portal which is available through ROS.

It is important to note that making a claim under SARP will negate other possible claims which may reduce tax e.g. a Foreign Earnings Deduction, Trans-border Relief, R&D (Research & Development) incentive. Employees should therefore take care before making a claim to ensure the relief provides the best tax outcome for them.

Reporting Obligations for Employers

An employer must submit an annual return to Revenue by 23 February, to provide the following information for all qualifying employees:

  • PPS Number
  • Nationality
  • Prior country of residence
  • Job title/role
  • Remuneration information (including any reimbursed school fees/home leave trips)

In addition, the annual return must set out the increase in number of employees employed or retained as a result of the qualifying employees working in Ireland.

From 01 January 2024, employers can submit the 2023 Employer Return and all subsequent years through the online eSARP portal.

If you have any questions in relation to SARP relief, or require assistance with preparing a Form SARP 1A application or annual SARP Employer returns, please contact us for assistance.

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Global Mobility Social Security Update: Framework Agreement on Cross-border Telework

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Framework Agreement on Cross-border Telework

Since the COVID-19 pandemic, there has been a significant shift in the way people work, with many employers now operating a hybrid approach to working. Cross-border teleworking can bring a lot of risks and challenges to both employees and employers, not only in the context of tax obligations but also in the determination of the applicable social security legislation.  Under EU regulations for cross border workers, where an employee works for at least 25% of their time in their State of Residence, the social security obligation would shift from the Employer State to the State of Residence.

In 2023, 18 EU countries entered into the Framework Agreement on EU cross-border teleworking.  The framework agreement follows Article 16 of Regulation (EC) No. 883/2004 on the coordination of social security systems, and provides that teleworking in an employee’s residence state will not be taken into account for determining the applicable social security legislation if it accounts for less than 50% of the employee’s working time.

There are now 22 countries who have signed the agreement, with Ireland signing up to the new Framework on 20 May 2024. This is effective from 1 June 2024.

Conditions:

The new agreement will apply if both member states involved have adopted the framework agreement and the following conditions are met:

  • The employee has one employer or multiple employers with a registered office in the same member state;
  • The employee habitually works in the member state of the registered office of the employer and teleworks in the residence state; and
  • The employee’s teleworking time is less than 50% of his or her total working time.

If the conditions are met, the social security legislation of the member state of the employer’s registered seat would continue to apply.

Application and Procedure:

A request for an A1 certificate must be submitted in the member state where the employer has its statutory seat. Requests can be filed for future periods only.  Retrospective applications may only be granted in limited circumstances.

Example:

Mark is working in France for a French employer since 2018. He has always worked 2 days from home in Germany and has been subject to the German scheme since 2018 (substantial activity). On 1 January 2025 his employer asks for an exemption under the Framework Agreement for the coming two years. The Framework Agreement applies and therefore the agreement is considered pre-given allowing France to immediately issue the A1 certificate as competent Member State.

Our View:

In a world where hybrid working is becoming more prevalent, this is a positive update and provides greater flexibility in managing the social security implications for cross-border workers.

It is important to note that the UK have indicated that they will not sign the framework agreement, which is disappointing given the number of cross-border workers between Ireland and the UK.

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Close Relative Loans – New Capital Acquisitions Tax (CAT) Reporting Requirements

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Close Relative Loans – New Capital Acquisitions Tax (CAT) Reporting Requirements

With effect from 1 January 2024, a new mandatory Capital Acquisitions Tax (CAT) reporting obligation is imposed on the recipients of certain loans from close relatives. This applies irrespective of whether any tax is due or not and is applicable to both new loans made from 1 January as well as existing loans.

This new requirement aims to provide Revenue with greater visibility of loans made between close relatives where the loans are either interest free or are provided for below market interest rates.

Who is a Close Relative?

A close relative is a person within either the Group A or Group B CAT tax free threshold category which includes:

  • a parent of the person,
  • the spouse/ civil partner of a parent of the person,
  • a lineal ancestor of the person,
  • a lineal descendant of the person,
  • a brother or sister of the person,
  • an aunt or uncle of the person, or
  • an aunt or uncle of the spouse/ civil partner of a parent of the person.

There are certain “look through” provisions that must be applied to loans made by or to private companies, including where the shares in the company are held via a trust, to determine if the loan is ultimately being made to a recipient by a close relative. The holding of any shares in a private company is sufficient for the look through provisions to apply.

What Loans must be Reported?

A loan is any loan, advance or form of credit and need not be in writing. The recipient of a loan will be required to file a CAT return where:

  • A loan has been made directly or indirectly between close relatives,
  • No interest has been paid on the loan within 6 months of the end of the calendar year, and
  • The total balance outstanding on the loan exceeds €335,000 on at least 1 day in a calendar.

All specified loans must be aggregated so if a person has more than one loan from different close relatives the amount outstanding on each loan in the relevant period must be added together for the purposes of determining if the threshold amount to €335,000 has been exceeded or not.

What Information must be Reported?

The CAT return must include the following information in respect of reportable loan balances:

  • The name, address and tax reference number of the person who made the loan,
  • The balance outstanding on the loan, and
  • Any other information which the Revenue Commissioners may reasonably require.

Case Study

A father and mother provide an interest-free loan of €400,000 to their son on the 31 March 2024. The son made no repayments on the loan in 2024.

On the receipt of an interest free loan of €400,000, the son is deemed to receive an annual gift of the free use of this money on the 31 December 2024. Irish Revenue value the annual gift at the highest rate of return the funds would generate if they were invested on deposit. Based on current interest rates applicable to a standard demand deposit account, one of the highest rates of return for a deposit account is 1.5%. As such, the value of the annual gift of notional interest is approximately €6,000 per year. After applying the annual small gift exemption of €3,000 per parent (€6,000 in total), the son is exempt from paying CAT on the notional annual gift in respect of this loan.

However, as the balance of the loan on 31 December 2024 exceeds the tax-free threshold of €335,000, the son is still required to file a CAT return under the new reporting provisions irrespective of the fact that no CAT is payable. The CAT return must be filed with Revenue no later than 31 October 2025.

Should you require any assistance in this area, please contact us.

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Research & Development (R&D) Tax Credit – What is it and how can it be claimed?

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The R&D tax credit was introduced to incentivise large multinationals to locate an R&D unit here and to encourage Irish companies to invest in R&D activities.

Where a company meets the criteria to qualify for the R&D credit, it will be entitled to claim a tax credit equivalent to 30% of eligible expenditure incurred by it on qualifying R&D activities. As the claimant should also be entitled to claim a tax deduction at the standard rate of corporation of 12.5% on the same expenditure, it should result in an effective corporation tax benefit of 42.5%.

Changes from 2024

For accounting periods commencing from 1 January 2024, new rules have been introduced in Budget 2024. The main changes include the following:

  • The R&D credit is increased from 25% to 30%
  • The first payment instalment has been increased from €25,000 to €50,000
  • The company must now provide pre-notification of intention to make an R&D tax credit claim

Is my company eligible to claim the R&D credit?

In order to qualify for the R&D tax credit the following must apply:

  • The applicant must be a company
  • The company must be within the charge to Irish tax
  • The company must undertake qualifying R&D activities either within Ireland or the EEA

The expenditure on which the company is making the claim must be wholly and exclusively incurred in the carrying on by it of qualifying R&D activities. As per Revenue guidance, it is crucial that claimants distinguish the term “carrying on” from “for the purposes of” or “in connection with”. Indirect costs such as recruitment fees, insurance and travel costs, which are not wholly and exclusively incurred in the carrying on of the R&D activity do not qualify as relevant expenditure.

Typically, expenses which qualify for the R&D credit include materials, salary costs, subcontracted R&D and plant and machinery.

What are qualifying activities for the purposes of the R&D credit?

Qualifying activities must:

  1. Be systematic, investigative or experimental activities;
  2. Be in a field of science or technology;
  3. Involve one or more of the following categories of R&D:
    • Basic research
    • Applied research
    • Experimental development
  4. Seek to achieve scientific or technological advancement; and
  5. Involve the resolution of scientific or technological uncertainty.

Essentially, the R&D activities being carried out must address an area of technological or scientific uncertainty where the outcome is unclear from the outset.

Claiming the R&D Tax Credit

Under the new R&D system which was introduced in Budget 2023, for periods commencing on 1 January 2023, a company will have an option to request either payment of their R&D tax credit or for it to be offset against other tax liabilities which will provide greater flexibility to the claimant.

Where a company opts to have the credit refunded, it will be refunded as follows:

  • The first €25,000 (for accounting periods beginning on or after 1 January 2023) or €50,000 (for accounting periods beginning on or after 1 January 2024) of an R&D claim will now be payable in full in year 1.
  • In year 2, the second instalment will equal three-fifths of the remaining balance.
  • The third and final instalment in year 3 will in effect be the remaining balance.

A company will have the option to specify whether the R&D corporation tax credit is to be offset against the company’s tax liabilities or is to be paid to the company. Under the new regime, the option is there to offset against any tax liability, such as PAYE Employer liabilities or VAT liabilities.

In addition to the above, the current limits on the payable element of the credit will be removed as part of the new system.

Pre-notification

With effect from 1 January 2024, companies who wish to claim the R&D tax credit and it is either their first tax credit claim or it has been more than 3 years since their last claim, there is now a requirement to notify Revenue of their intention to make the claim. This must be done 90 days prior to making the claim.

The company must do this in writing and the information required is as follows:

  • Name, address and corporation tax number of the company;
  • Description of the research and development activities carried out by the company;
  • Number of employees carrying on research and development activities; and
  • Expenditure incurred by the company on research and development activities, which has been or is to be met directly or indirectly by grant assistance.

It is important that companies review their activities to determine if they qualify for the tax credit as the credit can prove to be a very valuable source of funding.

If you have any queries about the R&D tax credit, please contact us.

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