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Finance Bill 2018
Finance Bill 2018, published today on 18 October 2018, contains a number of key measures, which will impact the taxation of both individuals and corporates in an Irish tax context. This includes measures to introduce new exit tax provisions in Ireland, Controlled Foreign Company legislation, as well as providing for the enactment of measures announced in last week’s Budget 2019. The Finance Bill reflects the focus of Budget 2019 in addressing key themes, including the changing international tax environment, further “Brexit proofing” of the economy and reducing the personal tax burden; all whilst being bound by EU budgetary rules and asserting prudence on policy decisions and spending given greater levels of uncertainty from a global economic perspective.
Finance Bill overview
A brief overview of key highlights in Finance Bill 2018 can be summarised as follows:
• The legislation to reflect changes to Ireland’s exit tax regime, which became effective for transactions on or after 10 October 2018, is contained within the Finance Bill. It reflects that an exit tax of 12.5% will be charged on unrealised capital gains where a company migrates its tax residence from Ireland or where a company transfers certain assets outside of Ireland. Prior to this amendment, certain companies could leave Ireland and the scope of Irish tax without a charge to CGT on exit.
• Ireland’s Controlled Foreign Company (CFC) legislation has been outlined in Finance Bill 2018. Deloitte submitted a detailed document to the Department of Finance in response to the CFC public consultation published in September. The EU Anti-Tax Avoidance Directive (ATAD) requires Ireland to introduce CFC rules that will be effective from 1 January 2019. The Finance Bill includes CFC rules that go beyond the standard required by the ATAD in certain areas, which we have highlighted previously should be considered from a competitiveness perspective.
• A number of amendments to the Key Employee Engagement Programme (KEEP) have been included in Finance Bill 2018, following on from the Budget 2019 announcements last week. Amendment have been made to the maximum ceiling on the annual market value of shares that may be awarded so that it is equal to 100% of the employee salary (up from 50%). In addition, the three-year limit has been extended to a lifetime limit and the amount of share options that can be granted under the scheme has been increased from €250,000 to €300,000. These changes are designed to assist indigenous SME companies attract and retain talent by further enhancing the KEEP incentive. The KEEP scheme subjects any gain arising on the exercise of qualifying share options to Capital Gains Tax at the time of disposal of the shares, in place of higher personal taxes at the time of exercise (as is the general treatment for share option gains).
• The income tax reliefs for investment in corporate trades have been overhauled in Finance Bill 2018, with a view to simplifying and overhauling the text of the legislative provisions, and introducing a range of changes to the operation of the Employment Investment Incentive (EII) and the Start-up Relief for Entrepreneurs (SURE). A Start-up Capital Incentive to allow tax relief to qualifying persons who invest in early stage start up ventures has also been included, which will run, along with the EII and SURE, to the end of 2021.
• The Finance Bill reflects changes to the tax relief on borrowings for landlords, such that interest relief on residential property lettings has been restored to 100% from 85% with effect from 1 January 2019 (accelerating restoration of the tax relief by 2 years). Accordingly, this will allow full tax relief for interest incurred on a loan to purchase, improve or repair a rented residential property.
• The 9% VAT rate for the hospitality sector, which was introduced in 2011, was increased to 13.5% with effect from 1 January 2019. The increase will mainly impact hotels, other short term guest accommodation and restaurants, but it will also apply to other areas including cinemas, theatres, hairdressers, museums and art galleries. However, newspapers and sporting facilities have been excluded from the increase and will remain at the 9% rate.
• Finance Bill 2018 has amended rent-a-room relief included in section 216A TCA 1997 of the legislation whereby a room must be let for a period of greater than 28 consecutive days in order to qualify for this relief (subject to certain exceptions). This may impact individuals renting rooms on a short term basis.
• In line with recent years, the Finance Bill contains a range of targeted anti-avoidance measures, as well as a number of technical amendments to existing provisions.
For further details on the above and other new measures not included in Budget 2019, we invite you to view our articles and commentary analysing the Finance Bill on our website. If you have any questions on what the Finance Bill means for you, your business or your family, please do not hesitate to speak with your usual Deloitte tax adviser or any member of the Deloitte tax team.
Finally, as in previous years, we will hold our Finance Bill event later in the year (on 5 December 2018) and hope to see many of you there.