Global Mobility, Immigration and Employment

Labour supply, and in particular increases in labour force participation, has been a significant feature of Irish economic growth in recent decades. Therefore, it is not surprising that since 2000, despite ups and downs in financial and labour markets, income taxes generated the largest amount of tax receipts throughout the period, ¹making up to 40% of total tax collected. ²This is a substantial revenue source to the Exchequer to fund vital public services, especially at the time of high, constant and growing demand for many of them. ³However, Ireland needs to remain an attractive economy for inward investment (“FDI”) and talent in the mobile and competitive global arena going forward. Personal taxes will continue to be critical in attracting and retaining inward investment and talent to Ireland. A tax policy that is competitive and effective is vital to Ireland’s position in retaining and attracting talent in the world which is highly digitalised and mobile. For indigenous companies looking to expand operations and footprint, personal taxes are a key factor as such taxes contribute to the costs of running a business.

Income Tax rates, bands, and credits

Our existing marginal personal tax rates are uncompetitive in comparison to other countries both inside and outside the EU. Ireland’s uncompetitive personal taxation system may act as a disincentive for multinational companies to come and remain here. Also, high taxes push up the cost of hiring for SMEs and attracting key talent. High personal tax rates not only act as a disincentive for companies staying or locating in Ireland, but they also act as a disincentive for people remaining in Ireland. Core recommendations for the reform of the personal tax system which have been presented to Government include an increase to the standard rate cut off point ("SRCOP") and a reduction to the higher rate of income tax. Previous commentary around Budget 2023 discussed the potential introduction of an intermediate rate of tax of 30% to provide greater take home pay for middle income workers; while we support a reduction in the tax burden for workers, we would note that the same result could arguably be achieved through increasing the SRCOP and by reducing the higher rate of income tax.

Furthermore, while inflation is projected to moderate between 2023 and 2024, it is nevertheless projected to remain above the Central Bank objectives until the latter half of 2024 in most countries. Accordingly, tax credits and flat rate allowances should be adjusted in line with the inflation rate to ensure that workers get the most out of their take home pay.

PSRI and USC

With three personal taxes in play (Income tax, USC and PRSI), together with their different rates and reliefs, this creates a level of uncertainty and complexity in the tax system which is not conducive to employment or economic growth. Merging income tax with the USC would provide a measure of clarity and would streamline the tax system considerably. Furthermore, we are not of the view that employer PRSI should increase in future Budgets and future opportunities to reduce the cost of employments to employers should be considered.

Mobile employees

Changes to working practices brought about by COVID19 and developments in communications technology mean that many high value roles can be carried out from anywhere. High personal taxes could result in some Irish based persons currently within the Irish tax net moving to other locations with a resulting loss of both income and corporate taxes. The Special Assignee Relief Programme (“SARP”) is a valuable initiative aimed at encouraging skilled personnel to relocate to Ireland by granting an exemption from income tax for 30% of earnings between a €100,000 threshold (€75,000 threshold for qualifying individuals who arrived in Ireland before 1 January 2023) and a €1m cap. While we support and welcome the extension of the SARP for new arrivals into Ireland to 31 December 2025 by the latest Finance Act 2022, other measures in this Act such as the increase in the minimum base salary from €75,000 to €100,000 and the requirement that a PPSN must be included on the SARP application form and submitted to Revenue within 90 days of arrival in Ireland may result in its attractiveness being reduced. As part of our pre-Budget submission to Government, we identified a number of key recommended enhancements to the relief including but not limited to:

• Extension of the relief to USC (and where relevant, PRSI) rather than being limited to income tax.
• Extension of the relief to new hires as well as existing employees assigned or transferred to Ireland. 
• Removal of the 90-day application period rules and instead incorporating information requests within the self-assessment income tax return. Overall, the SARP application process is unnecessarily complex and should be streamlined and simplified.

In addition, the Foreign Earnings Deduction (“FED”), which provides income tax relief to employees who spend a minimum of 30 days working overseas in certain territories, needs continuous reform to ensure that it remains fit for purpose. In our view, FED should be enhanced in a number of ways including but not limited to:

• Application of the relief to all countries, so as to assist Irish companies looking to expand their exports,
• Extending the annual maximum deduction to €100,000, and
• Extension of the relief to USC and PRSI.
  

Share based remuneration

The introduction of the Key Employee Engagement Programme (“KEEP”) was heralded as a welcome move to incentivise Small & Medium-Sized Enterprises (“SMEs”) to retain and reward staff in a tax efficient manner. KEEP was intended to bring Ireland into line with a number of other jurisdictions in order to assist SMEs in competing with publicly quoted companies who have the ability to use share-based remuneration to attract talent. Challenges 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.

Further areas of focus

While our pre-Budget submission details our recommendations to Government in full, further areas of focus include:

• Enhancements to remote working relief,
• Technical changes to reflect new hybrid working arrangements,
• The income tax treatment of employees engaged in R&D activities,
  Incentives aimed at boosting employment in specific sectors of the economy, and
• Amendments to enhance travel and subsistence relief, to align the treatment with that of the UK, our closest competitor for talent.

Our view

The top combined rate of tax should be reduced from its current level of 52% and the entry point to the higher rate of tax should be increased. At the very least a roadmap should be put in place to demonstrate to workers when this burden will be reduced.

The KEEP and SARP legislation require continued amendment and enhancement to achieve their stated aims, and we would welcome a wholesale review of both reliefs to identify ways to increase their effectiveness in the Irish labour market.

Our prediction

A recent public consultation, which closed on 5 April 2023, sought views on the future of personal taxes in Ireland. While the consultation was light touch in terms of the feedback sought, it raised interesting questions around enhancements to be made. In light of this consultation, and the reference made by the Minister for Finance on Budget Day last year on a potential personal tax roadmap, we remain hopeful that there will be some practical changes introduced to reduce the already high income tax burden faced by workers in Ireland, both employed and self-employed.

¹COT Briefing Paper (2021). Further information on, and analysis of, the above tax receipts trends is set out in the Department of Finance’s Annual Taxation Report 2021.

²Revenue, Headline Results 2022, see Headline Results 2022 (revenue.ie) – 37% of the total tax receipts; Revenue, headline Results 2021, see Headline Results 2021 (revenue.ie) – 39% of the total tax receipts; Revenue, Headline Results 2020, see Headline Results 2020 (revenue.ie) – 40% of the total tax receipts.

³See https://whereyourmoneygoes.gov.ie/en/2023/.