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.
Finance Bill 2022: Key Provisions
- The Special Assignee Relief Programme has been extended to 31 December 2025. An individual who arrives in Ireland in the years 2023 to 2025 will, as expected from the budget, be required to have a base income of €100,000 in order to qualify for SARP. The Finance Bill adds some additional requirements to qualify for the relief being the employee needs to be notified to Revenue under normal PAYE employee commencement rules and the individual is a person to whom a PPSN has been issued. The employer is required to certify within 90 days of the individual’s arrival that the employee has complied with the conditions including the PPSN requirement. The current Revenue practice is to accept applications without the PPSN as there can be delays in getting a PPSN. The current Revenue manual on SARP states “Where the conditions of the SARP are met, the absence or the delay in processing of a PPSN will not, in itself impact on whether an employee is eligible for relief. Approval for SARP will not issue, however, until the PPSN is provided to Revenue.” We hope the intention is to continue with this approach rather than denying relief where a PPSN is not issued within 90 days of arrival.
- A new reporting requirement for employers has been introduced albeit subject to a commencement order. The Finance Bill proposes an automatic requirement for an employer to report the following non-taxable benefits: the remote working allowance of €3.20 per day, the small benefits exemption and non-taxable travel and subsistence expenses. The Finance Bill summary states that the reporting of such benefits will align to the existing mechanisms used for payroll purposes and that the section is subject to a commencement order to allow for stakeholder engagement on the measure. Employers have over the last number of years borne a heavy burden in relation to employee reporting obligations having grappled with PAYE modernisation together with management of the Temporary Wage Subsidy Scheme and Employment Wage Subsidy Scheme. It will place a significant burden on employers to update systems and processes to report these non-taxable items through payroll as appears to be proposed. It is vital that a significant lead time is allowed for employers to prepare for any such requirements.
- The bike to work scheme, whereby a bicycle can be provided tax efficiently for travel to work, has been extended to allow for an expense of up to €3,000 where a cargo bicycle is provided.
- In a positive move in the Budget the Minister announced the extension of the Small Benefits Exemption to allow for two vouchers/benefits in a tax year with an increase in the annual exemption from €500 to €1,000.
- The Finance Bill proposes an amendment to the legislation such that a qualifying incentive is one that is the first or the second relevant incentive given to an employee in a year of assessment. Employer’s will need to take care when identifying the exempt benefits to ensure that the relief is claimed in line with this legislative provision which allows relief for the first and second benefit, subject to the ceiling of €1,000.
- The Finance Bill proposes an exemption from tax for employer contributions to a Personal Retirement Savings Account (PRSA). This is a very welcome change as to date employer contributions to a PRSA were treated as employee contributions for tax relief purposes restricting those with PRSAs greatly by comparison with individuals in occupational pension plans. Employers with a small number of employees often do not establish occupational pension plans with their employees having to utilise PRSAs to plan towards retirement. This change will allow employees to increase their own contributions to their PRSA.
- Tax relief is proposed for a pan-European Personal Pension Product (PEPP) as required under Regulation (EU) 2019/1238 of the European Parliament and of the Council of 20 June 2019. A PEPP will be a contract-based product between an individual and a PEPP provider in the form of an investment account. PEPPs are of a similar nature to PRSAs and will be taxed in a similar manner with tax relief for employee contributions, no tax on the growth in the fund but tax on pension payments drawn down from the fund. In line with the amendment for PRSAs, employer contributions to a PEPP will be exempt from income tax.
- The Finance Bill sets out that a lump sum from a foreign pension scheme will be treated in the same way as a lump sum from an Irish approved scheme from 1 January 2023. This means that a lump sum from a foreign pension scheme will utilise the tax free pension lump sum threshold of €200,000. It will also utilise the next €300,000 band to be taxed at the standard rate of tax of 20% with any excess over €500,000 being taxed at the marginal rates of tax and USC. The change means that the €200,000 and €300,000 pension lump sum lifetime thresholds will be depleted by both domestic and foreign pension lump sums.