Tax Developments Promoting Growth of Indigenous … locations docs/Ireland...Tax Developments...
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Tax Developments Promoting
Growth of Indigenous Business
and Attracting Foreign Direct
Investment
Jackie Masterson Liam Kenny
Overview of
Presentation
• Tax Developments Promoting Growth for
Indigenous Business
• Tax Developments Attracting Foreign
Direct Investment
Tax Developments Promoting Growth for
Indigenous Business
Jackie Masterson
Agenda
• Corporation Tax
Exemption
• New & Back to
Work Hires
• EIIS
• VAT update
Tax Exemption for
Start-Ups
Corporation Tax
Exemption
• Relief from corporation tax for 3 years
• New company carrying on new trade
• Total profits:
• ≤ €320,000; CT may reduce to Nil
• > €320,000 ≤ €480,000 CT rate <12.5%
• 2011 onwards relief linked to PRSI
contributions
Corporation Tax
Exemption
• Qualifying Trade:
• Commenced by new company
• 1st January 2009 – 31st December 2014
• “New” = incorporated on / after
14th October 2008
Corporation Tax
Exemption
• Excludes:
• Trades previously carried on in Ireland by
another person
• “Excepted” Trades – s.21A
• Professional Services Companies – s.441
• Certain trades specified in EU Regs
• Anti-avoidance -associated companies
Corporation Tax
Exemption
• The Relief
• Total corporation tax ≤ €40,000
• Relief lesser of:
• CT referable to qualifying trade
• Specified contributions
• Specified contributions per employee – lesser of:
• PRSI paid
• €5,000
• NB PRSI ceiling change retrospective (1 Jan 2011)
• Marginal relief CT > €40,000 < €60,000
Example-Tax
Exemption for Start-
Ups
• Case I income – Shop A (new) €100,000
• Case I income – Shop B
(previously carried on as sole trader) €50,000
• Case V rents €20,000
• Total Income €170,000
• Tax Payable
• €150,000 @ 12.5% €18,750
• €20,000 @ 25% €5,000
€23,750
Example
• Total Corporation Tax < €40,000
• Relevant Corporation Tax
(€23,750 - €5,000) €18,750
• Referable to Income from Qualifying Trade
€18,750 x €100,000/€170,000 - €20,000) = €12,499
• Relief Available = €12,499
• Specified Contributions > €15,000
• Net Corporation Tax Payable =
€11,250
New & Back to Work
New & Back to Work
Hires
1. Employer Job (PRSI) Incentive Scheme
• Introduced 2010; extended to 2012
• Employer PRSI Exemption for up to 18
months
• Scheme Criteria
• Include as contribution for s.486C
New & Back to Work
Hires
2. Revenue Job Assist / Long Term Unemployed
• Unemployment > 12 months
• In receipt of certain benefits
• Employer and employee incentive
Employer
• Double deduction to employer
• Emoluments/PRSI for 36 months
• Worth €2,500 p.a to company / €8,000 p.a to sole trade
(at min. wage)
New & Back to Work
Hires
• Employee
• Personal allowance for individual
• Additional tapering allowance for 3 years
• Individual plus each qualifying child
• 20% rate payer worth €1,524 over 3 years
New & Back to Work
Hires
3. Back to work enterprise allowance (BTWEA)
• Aimed at certain unemployed, lone parents, social
welfare recipients
• Pursue self employment
• Retain social welfare payments up to 2 years
• Benefit not taxed
• Form BTW2
New & Back to Work
Hires
4. Back to work short term enterprise allowance
• Become unemployed / immediate support
• Pursue self employment
• Retain job seekers benefit
• Allowance = jobseekers benefit
• Max period of 1 year
• Benefit is taxed
• Business Plan must be approved
• Form STEA1
New & Back to Work
Hires
5. Job Bridge
• Internship of 6-9 months
• Individual sign on for at least 3 months
• €50 per week additional to participants
New & Back to Work
Hires
6. Succeed in Ireland
• Finders fee
• Online referral network
• €1,500 - €3,000 per sustainable job
• www.connectireland.com
EIIS
EIIS
• Replaces BES
• Replaces seed capital relief
• New legislation
• Some provisions retained
• Key differences
EIIS – Key Changes
• Qualifying Trade
• Broader range than BES
• Some exclusions remain e.g.
• Dealing in shares
• Dealing in land
• Forestry
• Hotels
• Nursing Homes
• Professional service companies
• Easier for green energy companies
EIIS
• Cap on total EIIS investment
• €10m (previously €2m)
• €2.5m per annum (previously €1.5m)
• Holding Period
• 3 years (from 5 years)
EIIS
• Income Tax Relief
• Maximum investment €150,000 per annum
• 30% relief (from 41%)
• 11% additional – after 3 year period
• Employment levels/R&D
• HIE – 30% only
EIIS – Provisions
Retained
• Investor connection with the company
• Qualifying company – size:
• Micro/small – located anywhere
• Medium:
• Assisted area or
• Start up stage – located anywhere
• Qualifying company
• Control
• Subsidiaries
Seed Capital
Seed Capital
• Encourage employees to set up own business
• Maximum subscription €600,000
• Maximum relief in any year €100,000
• Refund of tax in previous 6 years
• Individual – requirements:
• Employment with company
• Share capital – new and other companies
• Income sources – Schedule E
Seed Capital – Key
Changes
• Removal of limitation on qualifying trades
• Permitted limit of non schedule E income
• €50,000 (previously €25,000)
VAT Update
VAT Update
• Alternative to bi-monthly returns?
• Turnover dropping de-register?
• Cash receipts basis
• Continuous supplies – RFPs
• Bad debts
• VAT 13B
• Conference accommodation /CO2
vehicles
VAT Update
• Place of supply of services
• Temporary 9% VAT rate
• Revised Pharmacists Scheme – Ebrief
41/12
• Receiverships
• Electronic Invoicing
• Mandatory E-Filing
Tax Developments Attracting Foreign
Direct Investment
Liam Kenny
Topics to be Covered
• Foreign Earnings Deduction (FED)
• Special Assignee Relief Programme (SARP)
• R&D Tax Credits – FA 2012 Essentials
• Group Losses – Recent Developments
Foreign Earnings
Deduction (FED)
• FED – reintroduced by FA 2012 to support companies'
efforts to expand into BRICS countries
• BRICS countries (Brazil, Russia, India, China, South
Africa)
• Operate for three years with effect from 1 January 2012
• Available where individuals work 60+ days in a 12 month
period in any of the BRICS countries
• The individual's taxable income is reduced accordingly
Foreign Earnings
Deduction (FED)
• Deduction of taxable salary, not USC
• Deduction = No. Qualifying Days x Qualifying Income
365
• Qualifying days = 1 of at least 4 consecutive days
• Capped @ €35,000 deduction
• Max income tax saving €35k @ 41% = €14,350
Foreign Earnings
Deduction (FED) -
Example
• Mary is Irish resident
• She is working on a project in Brazil throughout 2012,
spending at least 3 weeks at a time working in Brazil,
therefore 90 qualifying days in total
• Annual remuneration package: salary of €150,000,
taxable share award of €20,000 and share option gain of
€10,000
• FED available:
- Qualifying income €180,000 * 90/365 days = €44,380
- Deduction capped at €35,000
- Reduction of taxable salary of €35,000 and repayment of income
tax of €14,350 (not USC)
Foreign Earnings
Deduction (FED)
• FED is regarded as a „specified relief'
• Not applicable to Benefit-in-Kinds (BIKs)
• Employee/director must make claim for FED in personal
income tax return to obtain relief each year
• FED cannot be claimed where the following reliefs apply:
- Special Assignee Relief Programme (SARP)
- New Employee R&D Tax Credit Relief
Special Assignee Relief
Program (SARP)
• Objective - attract key talent to Ireland
• Persons arriving in Ireland in 2012, 2013 and 2014
• Employers incorporated and tax resident in treaty
country ("relevant employer")
• N/a branches & unincorporated entities
• Employed by relevant employer for 12 months prior to
arrival in Ireland
• Employee must perform substantially all duties in Ireland
for 12 consecutive months
Special Assignee Relief
Program (SARP)
• Employee - not ROI tax resident in 5 tax yrs pre-arrival
• Max 30 overseas working days
• Min base salary of €75,000
• Tax free deduction from remuneration
(A-B) x 30%
A = total remuneration (cap €500k)
B = €75k
• Max annual relief (€500k - €75K) x 30% x 41%= €52,275
• Claim max of 5 years only
• N/A to USC or PRSI
Special Assignee Relief
Program (SARP)
If claiming SARP
• Cannot claim :
• Remittance basis
• R&D key employee relief
• Cross border worker relief
• FED
• Can claim :
• Travel costs – return trip
• School fees max €5k
Research &
Development (R&D)
Positive changes enacted by Finance Act 2012
to R&D tax credit regime:
1. Employee Remuneration
2. Base Year Relaxation
3. Outsourcing Rules Relaxed
Employee
Remuneration
• Option now to reward "key" employees involved in the
R&D process
• Key Employee:
• Not director or director of a connected company
• Not holding material interest or connected to person who has
material interest
• 75% duties of employment are R&D
• Credit can't reduce the employee's effective rate of tax to
below 23% - employee claim required
• The aggregate surrendered to employees must not
exceed the company's CT liability for the period (prior to
any R&D tax credits)
Base Year
• Positive changes for SMEs
• 1st €100k of qualifying spend – ignore base year
• Tax credit will continue to apply to incremental R&D
expenditure in excess of €100k
• Therefore additional €25,000 per annum of tax credit
(effectively cash) available to reinvest
Outsourcing
• Positive changes for SMEs who may not have capacity to
undertake all R&D activities in-house
• Previously sub-contracted spend restricted to 10% of total
spend (or 5% of total spend where sub-contracted to third
level institutions)
• Limit now increased to greater of:
• 5%(universities)/10%(others) of total R&D spend; or
• €100,000
• Company must notify third party provider it cannot claim
R&D tax credit also
Research &
Development (R&D)
Other Recent Developments:
•Substantial amount of Revenue Audits being conducted:
- self review approach adopted by Revenue
•Significant focus on contemporaneous back-up documents
•Claim for R&D Tax Credits must be made within 1 year of
the end of the accounting period in which expenditure is
incurred
•Claim for year ended 31 December 2011 must be made by
31 December 2012 – only 3 months left!
Group Loss Relief
• Two companies are members of a group if one is a 75%
subsidiary of the other or both are 75% subsidiaries of a
third company
• Group relief is available to Irish companies, in respect of
certain losses incurred by their non-Irish subsidiary
companies
• Losses to be surrendered between group companies:
- Trading Losses;
- Certain excess capital allowances;
- Management expenses; and
- Charges on income
Group Loss Relief
• Current year losses only
• No capital losses surrendered
• Losses only grouped against profits of a corresponding
accounting period
• Restriction on group loss relief if Corporation Tax
Returns filed late:
- 25% restriction delay is less than 2 months
- 50% restriction delay is greater than 2 months
Group Losses - Recent
Development
• The previous corporation tax group relief provision
required all members of a loss group to be resident in:
- Ireland;
- the EU; or
- an EEA member state (with which Ireland had a tax treaty)
• Group relief provisions have been extended such that a
group will now include a company tax-resident in a double
tax treaty country or listed on a recognised stock
exchange, i.e. ownership may be traced through such
group companies
• Ireland has DTA‟s with 66 jurisdictions
Group Losses - Recent
Development
• Principal class of shares must be substantially and
regularly traded on a recognised stock exchange
• Amendment only applies to companies with accounting
periods ending on or after 1 January 2012
• Apportionment rules are applicable for accounting periods
which straddle this date
Questions
Thank You