Tag Archive for: Tax tip

Understanding the EU VAT in the Digital Age (ViDA) Reforms: Key Points for Irish Businesses

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Understanding the EU VAT in the Digital Age (ViDA) Reforms: Key Points for Irish Businesses

The EU’s VAT in the Digital Age (ViDA) package will enter into force on 14 April 2025 and will be rolled out in stages. ViDA has been called the biggest VAT reform since the Single Market, but what is it and what does it mean for Irish businesses?

There are three pillars to the ViDA package:

  With effect from Key Points
Pillar 1 – Digital Reporting Requirements & eInvoicing 1 July 2030
  • eInvoicing will be mandatory for intra-Community B2B and B2G transactions
  • Data from the eInvoice must be reported in real-time to revenue authorities
  • Withdrawal of VIES returns/ EC Sales List reporting
Pillar 2 – Updated rules for the platform economy 1 July 2028 (voluntary)

1 July 2030 (mandatory)
  • Platforms facilitating supplies of passenger transport or short-term accommodation will become responsible for collecting and remitting VAT to tax authorities when their users do not
Pillar 3 – Single VAT Registration 1 January 2027

 

 
  • OSS Scheme extended to include B2C supplies of electricity and natural gas
1 July 2028
  • OSS Scheme further extended to include B2C supply and install contracts, and certain domestic supplies of goods and services by taxable persons not established in the Member State of consumption
  • New OSS module to report intra-Community movement of own goods
  • Mandatory reverse charge on B2B services received from non-established suppliers

Explanatory notes with detailed guidance on how ViDA should be implemented are currently being drafted at EU level. It is expected that Irish Revenue will publish implementation guidance for Irish businesses during 2025. Aligned with this, Irish Revenue is looking to modernise Ireland’s administration of VAT generally so there could be further changes to the Irish VAT system.

How Should Irish Businesses Prepare for ViDA Changes?

Irish businesses selling goods or services within the EU should take this opportunity to evaluate how the ViDA package will affect their VAT processes and registrations and take necessary actions to ensure they are ready for the ViDA changes.

Please contact us if you require assistance with preparing for these changes.

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New VAT Rules for Small Businesses | EU VAT SME Scheme

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New VAT Rules for Small Businesses (VAT SME Scheme)

The domestic VAT SME scheme allows small businesses to sell goods and services to their customers without charging VAT. In Ireland, the VAT registration thresholds are:

  • €42,500 for businesses supplying services; and
  • €85,000 for businesses supplying goods.

Irish businesses operating below these thresholds making supplies of goods and services within Ireland are not required to register and charge for VAT. However, up to 31 December 2024, if the Irish business made supplies in another EU Member State, there was no registration threshold and the business could have registration and filing obligations in the Member State where the supply took place.

From 1 January 2025, the EU VAT SME scheme allows these small businesses the option to avail of the registration thresholds in other Member States. If eligible, these businesses will not have to register for VAT when supplying goods and services there.

To be eligible to use this EU VAT SME scheme in another Member State, an Irish business must:

  • be established for VAT purposes in Ireland only,
  • not exceed the domestic turnover threshold(s) of the other Member State(s) where supplies are made,
  • not exceed the Union turnover threshold of €100,000,
  • be registered in Ireland to use the scheme and file quarterly reports once registered. These reports declare the turnover of the small business in all EU Member States.

An Irish business wishing to register to use the scheme in other Member States must make a formal application to Revenue. If successful, it will receive an individual identification number with the suffix “EX”. This number must be provided on any invoices issued by the business.

Business customers located in other EU countries who receive an invoice with “EX” are not obliged to account for VAT using the reverse charge mechanism on that invoice. It is the business customer’s responsibility to check the VAT exempt status of the small enterprise using the SME verification check.

The EU VAT SME scheme is only open to small businesses established within the European Union. It does not apply to small businesses established in the United Kingdom, including Northern Ireland.

It is possible for a small business to avail of the EU VAT SME scheme in some Member States and the standard VAT regime or One Stop Shop scheme in others. As businesses that avail of the VAT SME schemes cannot reclaim VAT on their costs, each small business must assess the best option for them.

However, this new scheme will significantly reduce compliance for small EU-based businesses selling to other EU countries.

If you require further information or assistance, please contact us.

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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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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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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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Knowledge Development Box Update

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Knowledge Development Box Update

The Knowledge Development Box was introduced by Finance Act 2015, for those companies whose accounting periods commence on or after 1 January 2016. This legislation will allow small and medium sized companies engaged in research and development activities which led to the creation of the patent, copyrighted software or intellectual property (IP) equivalent to a patentable invention to reduce the tax paid on profits arising from these qualifying assets.

Updates to the legislation were enacted in September 2023 and from October 2023 the profits arising from patents, copyrighted software or IP equivalent to a patentable invention are now taxed at an effective rate of 10% rather than a previous effective rate of 6.25%.

Although this is not as favourable as it once was, if the profits arising from qualifying assets are significant, there could still be significant tax savings for companies.

Qualifying Assets

For the purposes of KBD, a qualifying asset would include the following assets that arose from R&D activities:

  • A computer programme
  • An invention protected by a patent
  • IP for small companies

Qualifying Income

Any income generated from the above qualifying assets will qualify for the relief. The income generally would include:

  • Royalty income
  • Licensing fees
  • Portion of sales price that is attributable to qualifying assets

Operation of Relief

The relief operates by allowing a tax deduction of 20% (from October 2023) of the qualifying profits from the R&D activities which results in an effective tax rate of these profits of 10%. In order to calculate the qualifying profits figure, there is a formula to use as follows:

QE + UE  x  QA
OE

QE – Qualifying expenditure
UE – Uplift expenditure
OE – Overall expenditure
PQA – Profits from qualifying assets

Qualifying expenditure includes costs that have been borne by the company, wholly and exclusively in carrying out R&D activities which result in the creation, improvement or development of the qualifying assets.

Overall expenditure is the overall expenditure the company has incurred on R&D on the qualifying assets. The main difference between qualifying expenditure and overall expenditure is that outsourced costs and acquisition costs incurred by the company in relation to qualifying assets can be included here.

An additional “uplift expenditure” is allowed to increase the qualifying expenditure on the qualifying asset. The uplift expenditure is the lower of:

  • 30% of the qualifying expenditure; or
  • the aggregate of the acquisition costs and group outsourcing costs.

As can be seen from the above, the formula seeks to restrict purchases costs of IP and group outsourcing – this makes it more beneficial to Irish companies who do all the majority of the development work in house rather than multinationals who outsource elements to group companies.

Claims for the KBD must be made within 24 months of the period end.

For further information on the above article or any other issue surrounding the Knowledge Development Box, please contact us.

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Family Partnerships – Tax Efficient Estate Planning Structure for the Benefit of Family Members

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Family Partnerships – Tax Efficient Estate Planning Structure for the Benefit of Family Members

Family partnerships have become a tax efficient estate planning structure that allows parents to gift assets to their children while still retaining control, through their function as managing partner, of the investment of those assets.

The transfer of assets to the partnership is subject to tax for both the parents (Capital Gains Tax – CGT) and the children (Capital Acquisitions Tax – CAT). Stamp Duty also needs to be considered. However, the tax may be minimised, where assets of current low value, but with an expectation that they will grow over time, are transferred.

By transferring assets into the partnership, any future gains on those assets can be shared among family members. The ability to strategically distribute gains can lead to substantial tax advantages when considering the long-term growth of family assets. Family partnerships serve as an effective vehicle for succession planning, ensuring a smooth transition of assets and wealth to the next generation while potentially minimizing inheritance tax liabilities.

The partners are liable to tax on income/capital gains arising from the partnership. One of the most notable tax advantages offered in this structure is the ability to distribute income among family members in a tax-efficient manner. By strategically structuring the partnership, income can be allocated to family members who fall into lower tax brackets, effectively reducing the overall tax liability.

A partnership agreement should be prepared setting out the terms of the partnership, typically each partner’s contributed capital determines their partnership share. This is typically 90% for the children and 10% for the parents. The Agreement appoints a managing partner. By agreement between the partners, the managing partner decides on the investment strategy for the funds and the distribution policy of the partnership. By having one or both parents as managing partner, they retain control of the assets.

The partnership can be either a limited or general partnership. In a Limited Partnership, the liability for all bar at least one partner is limited to the amount they have contributed. Therefore their liability to debts is capped. A General Partnership is less administratively burdensome but all partners are liable for the debts of the partnership without limit.

Family partnerships are a useful vehicle for preserving wealth, optimising taxes, and ensuring a smooth transition of assets within a family unit.

Please contact us if you have any queries in relation to Family Partnerships.

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