Global Mobility, Immigration & Employment Taxes has been saved
Global Mobility, Immigration & Employment Taxes
From an income and employment tax perspective there were a number of key measures:
- There will be an increase in the standard rate income tax bands of €3,200 bringing the point at which a single person pays the top rate of tax up to €40,000 per annum.
- The Universal Social Charge is to be amended so that the ceiling for the second-rate band will increase from €21,295 to €22,920.
- There will be an increase of €75 per annum in the personal tax credit, the employee tax credit, and the earned income tax credit. There is also an increase of €100 per annum in the home carers tax credit.
- The Minister announced an additional tax credit of €500 per annum for renters for 2023 and future years. He stated he is providing that this credit may also be claimed in respect of rent paid in 2022.
- The Special Assignee Relief Programme (SARP) is to be extended to the end of 2025. The threshold income to avail of the scheme is being increased from €75,000 to €100,000 for new entrants. The Minister has outlined that existing SARP claimants are not affected by the change.
- The Key Employee Engagement Programme (KEEP) is to be extended to the end of 2025 and some key 2019 provisions are to commence following European Commission approval. KEEP is also being modified to provide for the buy-back of KEEP shares by the company from the relevant employee. The lifetime company limit for KEEP shares is being raised from €3 million to €6 million.
- The annual limit provided in respect of the small benefit exemption is to increase from €500 to €1,000 and two vouchers/non-cash awards may be granted by an employer in a single year under this exemption. These changes are proposed to apply for 2022.
- Foreign Earnings Deduction (FED) is extended to the end of 2025.
In light of the cost-of-living pressures, it was well flagged that Budget 2023 would include some tax giveaways. The increase in the standard rate tax bands is relatively substantial in a budget context and reduces the tax burden for a single individual earning over €40,000 by €640 per year. However, as our marginal rate remains at 52%, Irish employees still have one of the highest personal tax burdens in the OECD.
The reintroduction of a rent credit will be welcomed by those renting at a time of inflation. One of the key challenges for Ireland in attracting talent is the lack of availability of housing. While the rent credit will be welcomed by those paying rent it will not impact on the availability of rental property. For tax equalised employees on assignment to Ireland, the rent credit will reduce the employer cost albeit by a relatively small amount.
SARP is a valuable relief that encourages skilled individuals to relocate to Ireland by providing an income tax exemption for earnings in excess of €75,000 up to a cap of €1m. This relief is currently available to individuals who arrive in Ireland up to 31 December 2022 where the relevant conditions are satisfied. The extension of the relief to the end of 2025 is a welcome development for many multi-nationals although the increase in the qualifying income level to €100,000 for new entrants will make this relief even more restrictive. In our view, the current relief is insufficient and too restrictive. Therefore, the change announced by the Minister is disappointing.
The aim of the KEEP is to help smaller firms who cannot compete with larger firms in cash remuneration terms to attract and retain talent in a challenging labour market. However, KEEP in its current design has ultimately failed to provide SMEs with an easy to implement and cost-effective way to offer shares to employees. The announcement of the extension to the end of 2025 and the expected commencement of 2019 changes with the additional amendments will therefore be a welcome development for many companies.
Currently, companies are facing challenges of cost increases coupled with a constrained labour market and these businesses need to consider alternatives to cash remuneration. The introduction of KEEP was heralded as a mechanism to help SMEs retain and reward staff, but the current KEEP legislation has presented a number of difficulties in operating the scheme effectively which has put SMEs on the back foot in terms of competing in the labour market.
The provision for the buy-back of KEEP shares by the company is a very welcome change. However, some challenges may remain in relation to KEEP such as the definition of a holding company for KEEP and the lack of a safe harbour or Revenue guidance regarding the valuation of shares.
The Small Benefit Exemption allows an employer to provide limited non-cash benefits or rewards to their workers without the payment of income tax, PRSI and USC. It is welcome that this exemption is being increased by €500, that an employer can award two vouchers/non-cash awards and that the changes are to apply for this year. Many employers, who will already have awarded one tax-free award to employees during 2022, will now be able to make a second tax-free award prior to Christmas 2022.
The summary of tax policy changes states that Revenue will conduct a range of targeted projects which will include PAYE compliance interventions involving a further focus on share schemes. Employers and employees will need to ensure compliance with their tax obligations generally but particularly in relation to share schemes.
The Minister outlined that analysis of the Tax Strategy Group (TSG) report in relation to a third tax rate is required and this will commence immediately. In addition, he referenced the development of a medium-term roadmap for personal tax reform taking account of the recent Report of the Commission on Taxation and Welfare. Overall, it seems likely there will be changes over the coming budgets.