Budget 2015 was announced today, 14 October 2014. It is seen as the first non-austerity budget in recent years as evidenced by cuts in the higher rate of income tax, stimulus reforms to the construction and agriculture sectors and the announcement of an enhanced intellectual property (“IP”) regime for companies.
As Ireland’s corporate tax regime has been under increasing scrutiny in recent times, it is therefore not surprising that a “road map” containing 10 key elements for Ireland’s tax competitiveness was published along with the Budget. The Minister emphasised the importance of real and substantive foreign direct investment in Ireland. The plan focuses on Ireland’s tax rate, regime and reputation and seeks to reinforce Ireland as a top destination for multinational companies.
The plan reiterates Ireland’s strong commitment to the 12.5% corporation tax rate. The controversial so-called “double-Irish” structure will be phased out with changes to Ireland’s corporate tax residency rules. From 1 January 2015 companies should no longer be able to avail of the structure as it currently exists. A grand-fathering period will apply until 2020 to companies who have implemented the structure before 1 January 2015.
To increase Ireland’s competiveness and ability to attract high value research and investment from multi-nationals, the Minister announced the introduction of an enhanced IP tax regime for companies. The centrepiece of the new proposals is the introduction of a ‘Knowledge Development Box’ akin to a patent box. The Minister announced a consultation process to ensure it is “best in class” and will legislate for it in the 2015 Finance Bill. In addition, further improvements to the R&D tax credit and specified intangible asset regime were announced.
From an income tax perspective, the threshold from which the marginal rate applies (for single individuals) has been increased to €33,800 from €32,800 and the marginal rate of income tax for individuals will be reduced from 41% to 40%. Any benefit of this 1% reduction will however be negated for individuals earning more than €70,000 who will now have to pay 8% USC on earnings over this amount. The rate of USC for self-employed individuals on amounts in excess of €100,000 has been increased by 1% to 11%.
Measures were also announced to increase Ireland’s attractiveness for high-earning multi-national executives locating in Ireland with improvements to the special assignee relief programme, including the welcomed abolition of both the upper salary threshold and exclusion of work abroad. In addition, the residency requirement has been amended so as to only require Irish residency and the requirement to have been employed abroad by the employer has been reduced from 12 to 6 months.