Tag Archive for: Tax

Finance Bill 2024

Finance Bill 2024

The Minister for Finance, Jack Chambers, published the Finance Bill 2024 for approval on Thursday, 10 October. The Bill implements the taxation changes announced on Budget Day. Some of the more notable changes include:

Small Benefit Exemption

  • The increases announced in the Budget will take effect from 1 January 2025.

National Governing Sporting Bodies

  • The Bill introduces an exemption from tax on investments for a period of up to 10 years, provided funds are ultimately used for qualifying activities.
  • DIRT refundable.
  • Donations to National Governing Bodies (NGBs) for the promotion of participation in sports by women and those with disabilities will attract tax relief.
  • Donors (PAYE and Self Assessed) may elect for the tax relief to apply to the sporting body or to themselves.

Pensions

  • Contributions by employers to PRSAs to be capped at 100% of employee’s emoluments from that employment in the previous year of assessment.
  • The Standard Fund Threshold to increase to €2.8m by 2029 and from 2030 will be indexed linked.

Stamp Duty

  • Bulk Acquisitions – higher rate of Stamp Duty at 15% will apply to the acquisition of 10 or more residential properties in any 12 month period. Increased rate will not apply to apartments.
  • New rate of 6% on residential properties over €1.5m will not apply to acquisitions involving three or more apartments.

 

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New Angel Investor Relief for Ireland

New Angel Investor Relief for Ireland

Finance (No. 2) Act 2023 introduced a new Capital Gains Tax (CGT) relief, “Relief for Investment in Innovative Enterprises” or “Angel Investor Relief”. Angel Investor Relief will allow angel investors to avail of an effective reduced rate of CGT of 16% or 18% for partnerships on the sale of an investment in an innovative start-up SME. The relief can be applied on a gain of up to twice the value of their initial investment and is subject to a lifetime limit of €3 million.

Before seeking investment, the company must submit its business plan to Revenue. If, following consultation with Enterprise Ireland, Revenue are satisfied, they will issue a certificate of going concern and a certificate of commercial innovation to the company. These certificates of qualification are given by the company to the investor to enable them to claim the relief.

There are conditions for both the investor and company to satisfy before the relief will apply:

An individual investor:

  • Cannot be connected with the company when they make the investment, i.e. they cannot be an employee or director of the company and cannot control the company.
  • Must retain the shares for a period of at least 3 years.
  • Must invest cash of at least €20,000 or at least €10,000 where the shares held by the individual represent at least 5% of the ordinary share capital of the company.
  • Cannot hold more than 49% of the company’s ordinary share capital in total.
  • Must retain a copy of the certificates of qualification that were valid on the date of investment.

The company must:

  • Be incorporated and tax resident in Ireland, another EEA State or the United Kingdom.
  • Carry on or intend to carry on its trading activities from a fixed place of business in Ireland.
  • Be an “innovative enterprise” i.e.
    • One that can demonstrate, by means of an evaluation carried out by an external expert that it will in the foreseeable future develop products, services or processes which are new or substantially improved compared to the state of the art in its industry, and which carry a risk of technological or industrial failure, or
    • the research and development costs of which represent at least 10 % of its total operating costs in at least one of the three years preceding the granting of the aid or, in the case of a start-up enterprise without any financial history, in the audit of its current fiscal period, as certified by an external auditor;
  • Be a company that it is reasonable to consider intends to, and has sufficient expertise and experience to, implement the business plan.
  • Be less than five years old and be unlisted.

Angel Investor Relief is currently subject to a Ministerial Commencement Order. Currently, the relief will be applicable to the disposal of eligible shares issued on or before 31 December 2026. It applies on a sale of the entire investment to a third party. It does not apply to buybacks or redemptions effected by the company itself. It cannot be claimed in conjunction with retirement relief and revised entrepreneur relief.

As a new tax relief yet to be signed into operation, it remains to be seen whether Angel Investor Relief will achieve its aims to assist SMEs in attracting investment and to make Ireland a more attractive location for angel investors.

If you have any queries about Angel Investor Relief, please contact us.

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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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Revenue Issue Updated Guidelines for Determining Employment Status for Taxation Purposes

Revenue Publish Guidelines for Determining Employment Status for Taxation Purposes

Revenue have today issued a new Tax and Duty Manual: “Revenue Guidelines for Determining Employment Status for Taxation Purposes“.

The previous Manual was taken offline to be updated after the October 2023 Supreme Court judgement in the Karshan case.

The new Manual provides welcome clarity as it outlines the five-step decision-making framework that businesses are required to use to determine whether a worker is an employee or self-employed for taxation purposes.

However, for some sectors, the new Manual will create additional payroll responsibilities as individuals previously considered self-employed should now be treated as employees and put on payroll.

Revenue have encouraged businesses to urgently and comprehensively review arrangements with all workers and determine their employment status for taxation purposes.

If you require any assistance, please contact us.

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Updates to the Tax Debt Warehousing Scheme

Tax Debt Warehousing Scheme Updates Interest Reduced to 0%

On 5 February 2024, the Minister for Finance, Michael McGrath, announced significant changes to the Tax Debt Warehousing Scheme.

The Tax Debt Warehousing Scheme allowed businesses who experienced trading difficulties during the COVID-19 pandemic to defer paying certain tax liabilities until they were in a better financial position.

Minister McGrath has reduced the interest rate applying to warehoused tax debt to 0% from 5 February 2024. In addition, Revenue has confirmed that, where a business has already paid warehoused debt, which was subject to interest at 3%, it will get a refund of that interest.

Businesses who availed of this Scheme still have until 1 May 2024 to pay the warehoused debt in full or to enter into a formal payment plan with Revenue. Revenue confirmed that it is taking a flexible approach in relation to payment plans for warehoused debt. This will include the possibility to extend the duration of payment plans beyond the typical three to five-year duration on a case-by-case basis, and that an initial down payment may not always be required.

If you would like our assistance with agreeing a payment plan with Revenue, please contact us.

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Tax Appeals Commission Publishes 2021 Annual Report

Tax Appeals Commission Annual Report

The objective of the Tax Appeals Commission (TAC) is to fulfil its obligations under the Finance (Tax Appeals) Act 2015 and the Taxes Consolidation Act 1997 (“TCA 1997”), thereby ensuring that all taxpayers may exercise, where appropriate, their right of appeal to an independent body against decisions and assessments of the Revenue Commissioners and the Criminal Assets Bureau.

It recently published its 2021 Annual Report. The report noted that in 2021 the TAC closed a record-breaking 1,793 appeals valued at €3.146 billion.

It also reduced the quantum under appeal from €4.5 billion to €1.65 billion and reduced the number of appeals on hand to 2,703, a reduction of 10%.

The TAC issued determinations affecting appeals to a value of €443 million. Of the appeals closed in 2021, over 70% were closed by way of being settled or withdrawal by the appellant. Almost 20% of appeals were either dismissed or refused.

Of the appeals opened and closed in 2021, more than 50% of the cases involved Income Tax.

Only 4% of cases involved Corporation Tax but they represented over 90% of the €3.146 billion case value.

In 2021, the TAC continued to improve its case management (with a new case management system to be implemented in 2022), case throughput and case closure.

For further information, please contact Eddie Murphy, Partner & Head of Tax Services.

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Upcoming Changes in Finance Bill 2021

finance bill 2021

The information below outlines upcoming changes in Finance Bill 2021 which will affect non-resident corporate landlords. The Bill is currently passing through the Oireachtas and is due to be signed into law by the president by 25th December 2021.

Section 18 of the Finance Bill 2021 brings companies not resident in Ireland that are in receipt of Irish rental income within the charge to Corporation tax. At the moment these companies are liable to income tax on their Irish rental profits.

This will result in the rate of taxation on such income increasing from 20 per cent to 25 per cent. This change is due to take effect from 1st January 2022.

There will be no change to the tax deductibility of any expenses in relation to the rental property. Provisions have also been made to ensure that rental losses & capital allowances will not be lost on the transition from income tax to corporation tax.

The Bill also amends the payment date for certain affected companies’ preliminary corporation tax for 2022. Those companies whose accounting period ends between 1 January 2022 and 30 June 2022 have until 23rd June 2022 to pay preliminary corporation tax where the payment is made using ROS.

As these non-resident corporate landlords will now be liable to corporation tax, they will also be subject to the new Interest Limitation Rules (ILR) which have been introduced to comply with the EU’s Anti-Tax Avoidance Directives (ATAD). The ILR seek to link a taxpayer’s allowable net borrowing costs directly to its level of earnings. The ILR does this by limiting the maximum tax deduction for net borrowing costs to 30% of earnings before tax and before deductions for net interest expense, depreciation, and amortisation (EBITDA).

If you have any queries, please contact Eddie Murphy, Partner & Head of Tax Services.

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Home Carer Tax Credit

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Budget 2019 increased the Home Carer Tax Credit from €1,200 to €1,500 per annum. This tax credit is available to married couples or registered civil partners, where one spouse stays at home to care for a “dependant”.

A dependant can be:
  • a child for whom child benefit is payable;
  • a person aged 65 years or over; or
  • an incapacitated individual.

It does not include a spouse or partner. Often there may be one or more dependants being cared for by the carer spouse. This does not increase the tax credit available.

The Home Carer Tax Credit is often unclaimed as there is a misconception that you must be caring for a sick relative. This is not the case.

Conditions to qualify:
  • You must be jointly assessed for income tax.
  • The dependant person must normally reside with the carer for the tax year. However, if the dependant person is a relative, they can live next door, on the same property or within 2kms of the carer. A relative includes a relative by marriage or a person for whom the claimant is a legal guardian, but not a spouse or civil partner. However, there must be a direct communication link between the two residences such as a telephone or alarm system.
  • The carer spouse must have income of €7,200 per annum or less (excluding any carers benefit or payments received from the Department of Social Protection). If you earn more than €7,200 but less than €10,200 per annum, you may claim a reduced credit:

For example, if the carer spouse earns €8,200 per annum, the maximum tax credit that can be claimed is reduced by the additional earnings as follows €8,200-€7,200=€1,000/2 = €500. The tax credit is reduced by €500 giving a maximum credit of €1,000 available.

If the carer spouse earns €10,200 or above, no Home Carer Tax Credit is available.

This tax credit cannot be claimed alongside the increased standard rate bands for married couples/civil partners. Revenue will grant you the more beneficial option.

Remember; if you qualified for the Home Carer Tax Credit in any of the past 4 tax years (2018, 2017, 2016, and 2015), you can still make a claim to Revenue for it.

If you require any assistance with the home carer tax credit, please contact us.

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Dwelling House Exemption – Capital Acquisitions Tax

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A recent High Court decision has a significant bearing on the application of dwelling house exemption to beneficiaries who inherit a mixed asset estate, comprising of a number of residential properties.

The dwelling house exemption allows someone to inherit a property tax-free provided that they have lived in it for three years before the homeowner’s death and that it was the main home of the person who has died. Critically, if a person owns even a share in another property “at the date of inheritance”, they lose their entitlement to the relief. Revenue has always been of the view that if someone who would otherwise qualify for dwelling house relief inherits not just the main home of the disponer but another property, or a share in another property, they no longer meet the eligibility criteria.

A Court ruling on 25th September 2018 has changed the rules on dwelling house exemption. The High Court ruled in the case of a successor, who inherited both the family home where the successor had lived with the disponer and an interest in four other properties, was entitled to the dwelling house exemption. The judge held that the successor did not have a beneficial interest in either of the dwelling houses at the date of the inheritance, as a successor cannot become beneficially entitled to a house which forms part of the residue of an estate until the assets available for distribution have been ascertained.

The impact of the Court case is that you will no longer be disbarred from dwelling house relief if you inherit property other than the family home in the same will. Revenue has now adopted a revised approach in distinguishing between dwelling houses inherited as a specific legacy and those inherited in the residue of an estate.

Accordingly, a dwelling house forming part of the residue of an estate is not to be taken into account in determining whether a successor has an interest in another dwelling house at the date of an inheritance. Ownership of property received as part of the residue of a will would occur at a later date than “at the date of inheritance”.

Anyone receiving a specific legacy of an interest in a property as well as receiving the family home will continue to be excluded. This is because, as a specific legacy, beneficial ownership of the “other” property would transfer at the same time as the family home.

Revenue acknowledged that if any taxpayers find themselves in a similar set of facts as this case then they may be entitled to a refund of the tax paid, bearing in the mind the four year limit that applies to refunds of tax.

Should you require any further details on the dwelling house exemption, please contact us.

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Corporate Exit Tax

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Exit tax regimes seek to impose a tax on unrealised capital gains where companies migrate their tax residency or transfer assets offshore.

Prior to Budget 2019, Ireland had a limited exit tax regime that was subject to several exceptions. While it was expected that new exit tax rules would be introduced before 1 January 2020 to comply with the EU’s Anti-Tax Avoidance Directive (ATAD), the implementation of new rules from 10 October 2018 was earlier than anticipated.

Old exit tax regime

Under the old exit tax regime, where a company changed its tax residence so that it was no longer within the scope of Irish tax, it was treated as disposing and reacquiring its assets at market value. This triggered a charge to tax at the rate of 33%, the standard capital gains tax rate.

The exit tax did not apply where the assets continued to be used in the State by a branch or agency of the migrating company or where the company was ultimately controlled by residents of a tax treaty country. The exit tax could also be avoided if the company transferring its residency was a 75% subsidiary of an Irish resident company and certain conditions were met for 10 years after the migration.

New exit tax regime

The new rules tax the unrealised gains of corporate entities where the following events occur:

  • A company transfers assets from its permanent establishment (PE) in Ireland to its head office or to a PE in another territory;
  • A company transfers the business (including the assets of the business) carried on by its PE in Ireland to another territory; or
  • An Irish resident company transfers its residence to another country.

The rate of tax applicable will generally be 12.5%. However, there is an anti-avoidance measure that applies a rate of 33% where the event triggering the tax forms part of a transaction to avail of the 12.5% rate rather than the standard capital gains tax of 33%.

Key points on the operation of the exit tax:

  • The exit tax will not apply to the transfer of assets that will revert to the PE or company within 12 months of the transfer, where the assets are:
    • Related to the financing of securities;
    • Given as security for a debt; or
    • Where the asset transfer takes place to meet prudential capital requirements or for liquidity management.
  • The tax may be paid in 6 annual instalments where the company migrates to an EU or EEA state.
  • Where a company ceases to be resident and an exit tax charge is imposed, the tax may be recovered from an Irish tax resident company within the group or from an Irish tax resident controlling director.

While the exit tax rate has been reduced, the new rules have significantly broader application than the old regime and transactions that previously would not have been subject to an exit tax may now trigger a tax charge.

For more information please contact Eddie Murphy, Partner and Head of Tax Services.

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