Budget 2015: Business tax | Deloitte Ireland | Tax, VAT, pensions, real estate, PRSI, PAYE, tax credits, R&D has been added to your bookmarks.
Insight from Conor Hynes, Partner, Deloitte on Budget 2015.
There has been a strong recovery in the Irish economy particularly throughout 2014. A significant part of this recovery has been driven by foreign direct investment and the many multinationals operating in Ireland. However, Irish-owned businesses continue to face significant challenges. Given the improved outlook for the coming years, this Budget presented an opportunity to assist indigenous companies to drive growth in their businesses.
Intellectual Property / Research and development incentives
The Minister committed to putting in place a “Knowledge Development Box” along the lines of patent and innovation boxes which have existed for many years in countries that compete with Ireland for foreign direct investment. The proposed new regime aims to complement the existing onshore IP regime and attract new inward investment and provides a strong commitment to the international community in relation to the government’s foreign direct investment policy. The information contained within the Minister’s statement is relatively light on detail, but we expect the regime will also benefit domestic companies.
Also in respect of the onshore IP regime, it was announced that the qualifying expenditure under the regime is being extended to include customer lists and the 80% restriction on capital allowances and interest expenses will be removed, which significantly enhances the existing onshore IP regime.
The R&D tax credit scheme is an important source of finance for developing Irish businesses. However, as the tax credit is currently based on the incremental spend in excess of a company’s R&D spend in 2013, the current regime penalises companies which had been carrying on extensive R&D activities in 2003. In a very positive development for both domestic and multinational companies, the Minister has announced that the base year will be removed from 1 January 2015. This should provide greatly needed funds to companies who were previously restricted from claiming the full value of the credit due to the existence of a high base year spend in 2003.
The Minster’s announcement that the Revenue Commissioners plan to publish new guidelines to enhance clarity on the administration of the R&D tax credit is also welcome, and should mean greater certainty for business who claim R&D tax credit relief. In order to address the lack of consistency in communication from Revenue and to enhance clarity for industry, we would recommend that a central specialist unit of research and development scheme experts should be put in place.
The Employment and Investment Scheme (EIIS)
Take up of the EIIS scheme has been low since its introduction in 2011. The changes in last year’s Budget which removed EIIS investments from the high earners restriction has been built on in Budget 2015 by raising the amount companies can raise in any one year to €5m, increasing the holding period by 1 year and including medium-sized companies in non-assisted areas and internationally traded financial services subject to certification by Enterprise Ireland. However, as investors only receive 30% tax relief up front on investment, with the remaining 11% four years later, the Minister could have gone further and allowed all relief upfront.
Expanding into new markets
The Foreign Earnings Deduction (“FED”) was put in place to encourage Irish business to expand into new markets and drive export business. The relief provides for a level of additional tax relief on the earnings of individuals, generated during periods spent working outside Ireland. The Finance Bill will extend the list of qualifying countries which, at present, is essentially the BRICS and a number of African countries, to include Chile, Mexico, and a number of countries in the Middle East and Asia. In addition, the calculation of “qualifying days” has been reduced to 40 days, and travel days are included, to recognise the realities of business travel for many businesses.
Most Irish domestic businesses start their export activities much closer to Ireland, and although today’s changes are certainly a positive development, extending the relief to include countries closer to home would have a more significant and direct impact on those companies.
Attracting and retaining talent
A Special Assignee Relief Programme (SARP) was introduced in 2008 to provide a measure of tax relief for mobile employees locating in Ireland. Some key changes in Budget 2015 include the removal of the upper salary threshold (previously €500,000) and the reduction in the requirement to be employed abroad prior to arrival to 6 months, both of which are welcomed. As the programme is currently only available to the FDI sector, it would be advantageous for it to be expanded to indigenous companies to help Irish-owned firms attract and retain the specialist skills they require from overseas countries. It remains to be seen if the Finance Bill will introduce measures which will result in the extension of the relief to indigenous companies.
Other incentives which were included in the Budget are the extension of the 3- year corporation tax relief for start-up companies and the extension of the accelerated capital allowances scheme for energy-efficient equipment for a further 3 years.