FED and SARP extended
The Foreign Earnings Deduction (FED) and Special Assignee Relief Programme (SARP) income tax reliefs have both been extended until 2020. Overall this is helpful, but in practice these reliefs are very limited.
The FED provides for income tax relief up to a maximum cash tax benefit of €14,000 for qualifying days spent working in certain non-traditional/developing markets. The Budget reduces the minimum number of qualifying days from 40 to 30 and also extends the relief to include Colombia and Pakistan.
The SARP provides for a 30% income tax relief on certain income over €75,000 for a period of 5 years. A number of conditions apply before SARP can be claimed, however, the Budget now extends this relief to those assigned to work in Ireland up to 2020. No other substantive amendments or enhancements to the regime were mentioned.
Incremental DIRT reduction
The Minister announced that the current Deposit Interest Retention Tax (DIRT) rate of 41% would be gradually reduced by 2% per annum over the next four years, resulting in a rate of 33% by 2020. Given the low interest rate environment this measure will have limited benefit for taxpayers and this is borne out by the Department of Finance’s own estimate that the 2% reduction next year will only cost the State €9m.
There were no changes to the Exit Tax rates (which apply to Irish funds and life policies – 41% for individuals and 25% for corporates). It is disappointing that these rates have not followed the DIRT rate downwards.
Section 110 and Irish Funds – Irish real estate
No further information was provided by the Minister in the Budget in respect of the proposed changes to Ireland’s Section 110 securitisation tax regime and Ireland’s investment funds regime. The proposed changes relate solely to structures used to hold Irish real estate or Irish real estate linked assets, therefore the vast majority of Irish Section 110 companies and Irish funds (e.g. QIAIFs, UCITS etc) will be entirely unaffected. Final draft legislation for both will be released in the Finance Bill. It is disappointing that the Minister has allowed the uncertainty around the proposed changes in this area to drag on even further. The Minister quite rightly criticised the EC over the Apple case and the uncertainty created and retrospective nature of the ruling; surely we must practice what we preach with regards to our own legislative changes.
The draft Section 110 changes released on 6 September 2016 were rushed and will likely need to be amended before they appear in the Finance Bill. You can read our overview of these changes here. The Minister took the opportunity in his Budget speech to confirm that the flagged changes to the Irish funds tax regime for funds holding Irish real estate assets will also appear in the Finance Bill. However, no information was provided and consultations will be held (changes may include a levy, exit tax for non-residents and/or capital charge). The continued uncertainty is very unhelpful. We will be writing more on this topic in the coming days, however, we are strongly of the view that the tax exempt status of Irish fund vehicles themselves, a cornerstone of their success and the associated job creation, must be retained.
12.5% corporation tax rate
The annual confirmation of the solidity of the 12.5% standard rate of corporation tax was included in the Minister’s speech as expected. He noted that this rate will not change and that nobody at EU level or elsewhere is calling for it to change. The 12.5% rate is hardwired into Ireland’s international tax strategy; an update to which was also released by Department of Finance. Ireland’s largest ‘opposition’ party, Fianna Fáil, also stated that it was ‘unequivocally committed’ to the 12.5% rate.
The Minister also confirmed that a review of Ireland’s corporation tax code will be conducted by Seamus Coffey, an independent economist. Terms of reference for this review include maintaining the 12.5% rate, avoiding preferential treatment of any taxpayer, achieving highest international standards on transparency, implementation of BEPS commitments and delivering tax certainty for business.
The three lowest rates of the Universal Social Charge (USC) have been cut for all taxpayers. This will have the biggest effective impact for lower and middle income earners. These three lowest rates will now stand at 0.5%, 2.5% and 5% respectively. The higher 8% rate on income above €70,044 and the additional 3% surcharge on certain non-PAYE income above €100,000 remain unchanged. The maximum cash tax saving from these USC reductions will be €353 for a single PAYE taxpayer and €453 for a married PAYE taxpayer.
The Budget also provides for an increase in the Earned Income Credit from €550 to €950 for the self-employed.
Share based remuneration
The much needed and hoped for improvement to Ireland’s share based remuneration tax regime failed to materialise in this year’s Budget. A significant enhancement to the effectively non-existent regime was expected following the detailed public consultation on the matter and acknowledgement by officials that a more competitive regime was needed. In his speech, the Minister noted that he would introduce a new ‘SME-focused’ regime however it is delayed until Budget 2018 to ensure it meets the European Commission’s state aid rules. This is once again a huge opportunity missed to introduce a meaningful share based remuneration tax regime, an important tool to attract and retain key talent, for all employers not just SMEs.