Introduction

The Minister for Finance delivered Budget 2015 on 14 October 2014. This is the first Budget to follow on from seven austerity Budgets. Each of those austerity Budgets brought with them painful adjustments and harsh economic conditions. In this regard, it was hoped that Budget 2015 would ease the burden faced by so many individuals and families in recent years and it has largely delivered on such expectations.

Ireland was tasked with reaching a target deficit of under 3% of GDP, which it has done successfully. The Minister for Finance is estimating a deficit of 2.7% of GDP next year and there are mixed views on whether a slightly smaller deficit (eg 2.5%) would have been a better idea in the long term.

There have been a number of changes to the personal tax regime, namely around efforts to reduce the tax burden on low and middle income earners. This includes favorable adjustments to the tax bands and rates, such as the upper income tax rate being reduced from 41% to 40% and the rate of Universal Social Charge (“USC”) also being reduced.

Although predicted, changes to close off the so called “Double Irish” scheme will be welcomed internationally and it is hoped that it will also give certainty to international investors around the Irish corporate tax regime for the future. Whilst full particulars of these changes will be published in the Finance Bill, the Minister indicated that all companies registered in Ireland will be regarded as being tax resident in Ireland. This change will take effect from 1 January 2015 for new companies, with transitional provisions for all existing companies until the end of 2020. It is hoped that this will give existing groups a sufficient period of time to restructure so that the corporation tax treatment of their Irish operations will remain very competitive. However, Michael Noonan noted that this step alone will not reform the international tax regime, rather co-ordinated action by all countries is necessary for this change to be effective on an international front.

The Government also intends to introduce a ‘Knowledge Development Box’ to make Ireland an attractive location for the development of intangible assets. This will be an income-based tax regime and will be designed to deliver an on-going competitive and sustainable effective tax rate. Public consultation on the development of the regime will commence in late 2014, with legislation expected in late 2015.

Overall, it is clear that Ireland has emerged from perhaps the worst financial crisis in living memory, with its tax regime for business intact and substantially enhanced. Although Budget 2015 is not without its flaws, it does signify that Ireland as an economy is stronger, robust and most definitely open for business.

Business Taxes

Budget 2015 introduced the concept of a “Road Map” in order to secure Ireland’s location as “the destination for the best and most successful companies in the world”. It is hoped that the Road Map will respond to a changing international environment by offering companies the opportunity to locate in Ireland and act as “companies of real substance offering real jobs”. The main features of the Road Map are as follows:

  • Improve Ireland's Research and Development (“R&D”) regime by fully phasing out the R&D base year (currently by reference to the 2003 threshold) from the 1 January 2015. Full details of this phrasing out regime will be contained in the forthcoming Finance Bill.
  • Improvements to be made to the provisions of Special Assignee Relief Programme. Full details of this will also be contained in the forthcoming Finance Bill.
  • Increased powers to be given to the Revenue Commissioners to allow them to act and be viewed and a “competent authority”.

As mentioned, it is also intended to enhance Ireland’s existing intangible assets tax provisions to make Ireland an even more attractive location for companies to develop intellectual property through the introduction of a “Knowledge Development Box”. This coupled with the abolition of the “Double Irish” scheme will hopefully encourage new companies to set up in Ireland, in a manner that’s beneficial for Ireland and fair to all of our international friends also.

Measures were previously introduced, by way of accelerated capital allowances, to incentivise companies to invest to energy efficient equipment. Such measures are being extended from 31 December 2014 to 31 December 2017.

Finally, Budget 2015 importantly reaffirms the Government’s commitment to maintaining the 12.5% corporation tax rate as part of “settled policy”.

SME Measures

The Minster has announced a number of key tax reforms targeted at the SME sector, including the following:

Start-up relief for companies:

  • The relief from corporation tax on trading income and chargeable gains for start-up companies will continue to apply to businesses that commence to trade in 2015.

Seed Capital Scheme (“SCS”)/ Employment Investment and Incentive Scheme (“EIIS”):

  • The Seed Capital scheme will be re-launched as “Start-up Relief for Entrepreneurs”.  The relief will be available to individuals who have been unemployed for up to two years.
  • The amount of finance which can be raised by a company under the terms of the EIIS is raised to €5,000,000 annually, subject to a lifetime maximum of €15,000,000.
  • The required holding period for shares in the EIIS has been increased from 3 years to 4 years.
  • The list of qualifying companies which can raise funds under the EIIS will be extended to include medium sized companies in non-assisted areas and internationally traded financial services.
  • Hotels, guest houses and self-catering accommodation will remain eligible for relief for a further three years.
  • The operation and management of nursing homes will be included for three years.

Foreign Earnings Deduction:

  • The relief is being extended until the end of 2017.
  • The list of qualifying countries will be extended to include Mexico, Chile and certain countries in the Middle East and Asia. The full list of countries has not yet been confirmed.
  • The number of qualifying days which must be spent abroad by employees is being reduced from 60 days to 40 days.
  • The minimum stay in a country is now reduced to three days and travel days can be included when calculating the days spent abroad. It is hoped that this will make it easier for employees to avail of the relief available.

9% VAT Rate

  • The reduced 9% VAT rate for tourism-related goods and services is being retained. The Minister noted in his speech that it is incumbent on the industry to ensure that this relief continues to be passed through fully to the consumer and “if prices begin to rise, the case for retaining the measure diminishes.”

Personal Taxes

Income Tax   The top rate of marginal income tax is reduced from 41% to 40%. The band for the payment of the standard rate has increased from €32,800 to €33,800 for single individuals. It has increased from €41,800 to €42,800 for married couples with one earner and the band will increase by €2,000 for a married couple with two earners.  

USC The USC exemption threshold has been increased from €10,036 to €12,012. Medical Card holders and those over 70 earning less than €60,000 will pay a maximum USC rate of 3.5%. As illustrated in the table below, the 2% USC rate has been reduced to 1.5% and the 4% rate has been reduced to 3.5%. There is a new rate of 8% for individuals who earn over €70,000 and a rate of 11% for self-employed individuals who earn over €100,000.

New USC bands and rates

Please click here to view the table.

Pensions The 0.6% pensions levy on lump sum savings will be abolished at the end of 2014. A further pension levy of 0.15%, which is also in place at present, will be abolished at the end of 2015.

Water charges   An income tax relief is being introduced on water charges. The relief will be provided at the standard rate 20% on water charges up to a maximum of €500, i.e. the maximum tax relief one household can claim is €100.

Indirect Taxes

A number of indirect tax and excise measures were also announced in the Budget. As noted above, the Minister for Finance confirmed that the VAT rate of 9% for the hospitality sector will remain in place.

The following changes were also announced:

  • The Vehicle Registration Tax (“VRT”) reliefs available for the purchase of hybrid electric vehicles, plug-in hybrid electric vehicles, plug-in electric vehicles, and electric motorcycles are being extended to 31 December 2016.
  • Special relief reducing the standard rate of tax on alcohol products by 50% on beers produced in microbreweries which produce not more than 20,000 hectolitres per annum is being extended to apply to microbreweries which produce not more than 30,000 hectolitres per annum.
  • A thirty day deferral of excise duty will be provided for mineral oil (subject to a commencement order).
  • The excise rate for Natural Gas and BioGas as a propellant will be set at the current EU Minimum rate and this rate will be held for a period of eight years.

Construction, Housing and Property

A number of measures have been introduced which should benefit the construction sector. Minister Noonan announced that he also intends “to remove blockages from the system to get the market moving, to generate building activity and to increase supply.”

The “Home Renovation Incentive” will be extended to rental properties. It will be extended to the cost incurred by landlords on renovating rental properties.  The incentive applies to landlords, who are liable to income tax, for work carried out from Budget night until the end of 2015.

The “Living Cities Regeneration Initiative”, available in Dublin, Cork, Limerick, Galway Waterford and Kilkenny is particularly directed at families who want to renovate pre-1914 city centre properties for family home use. The scheme also includes relief for certain retail and commercial properties in pre-1914 city centre buildings. This scheme is expected to be launched in early 2015.

The 80% windfall tax applying to chargeable gains on the disposal of certain development lands is to be abolished from 1 January 2015.

The Minister introduced a DIRT rebate scheme for first time buyers in relation to money saved for the deposit for their first home, which will run until the end of 2017.