Paschal Donohoe announced his second Budget as Irish Finance Minister on 9 October 2018. The Finance Bill was then published on 18 October and the timetable for the Bill is for it to have passed all stages in the Dáil by mid-December. The main corporate tax and value-added tax measures are summarised in this article.
There was a definite emphasis on tax regime stability in the 2019 Budget, as Donohoe announced a few unexpected changes to the corporation tax regime. Those measures that were announced tended to focus on anti-avoidance.
Arguably the most significant measure was the immediate introduction of an exit tax. All European Union member states are required to introduce an exit tax under the EU Anti-Tax Avoidance Directive (ATAD I) by 31 December 2019. However, Donohoe decided to introduce Ireland’s exit tax effective from midnight on Budget day to provide certainty to businesses currently located or considering investing, in Ireland.
The measure will tax the unrealised capital gains of companies which migrate or transfer assets offshore, such that they leave the scope of Irish tax. The rate for the exit tax will be set at 12.5%, in line with the headline rate of corporation tax.
- The Irish Tax Benefits for Investing in Intellectual Property
- Ireland Issues Guidance on Tax Repayments After Mergers & Acquisitions
- An Update on Ireland's Double Taxation Treaty Arrangements
- Continuous Improvements To Ireland’s R&D Tax Credit
Budget 2019 also included proposals for a controlled foreign company (CFC) regime in Ireland for the first time. Another requirement of ATAD I, CFC rules are anti-abuse measures designed to prevent the diversion of profits to offshore entities in low- or no-tax jurisdictions. They operate by attributing certain undistributed income of low- or no-tax subsidiaries (the CFCs) to the controlling parent company for immediate taxation.
In broad terms, an entity will be considered a CFC under ATAD rules where it is subject to more than 50% control by a parent company and its associated enterprises and the tax paid on its profits is less than half the tax that would have been paid had the income been subject to tax in the jurisdiction where the parent company is tax resident.
Member states must introduce CFC rules or bring existing national CFC rules into alignment with ATAD I by 1 January 2019.
The inclusion of the exit tax and CFC rules in Budget 2019 was foreshadowed in the Corporate Tax Roadmap published by the Government in September 2018 and therefore was expected by taxpayers.
Other business tax-related measures in the Budget included:
- An extension to the film corporation tax credit beyond its current end date of 2020, to December 2024, and the introduction of a new, time-lifted regional uplift of an additional 5% that will taper out over four years;
- The extension of the Three Year Start-Up relief to the end of 2021 (which would otherwise expire at the end of 2018), to provide corporation tax relief for profit-making start-up companies that create and maintain jobs;
- Improvements to the Key Employment Engagement Programme (KEEP), including increasing the ceiling on the maximum annual market value of share options that may be granted to 100% of salary, replacing the three-year limit with a lifetime limit, and increasing the overall value of share options that may be granted to €300,000 from €250,000.
No changes were announced to VAT rates in Budget 2019, although certain goods and services were moved into other VAT bands.
Tourism services will no longer benefit from the 9% rate of VAT and will be subject to the 13.5% rate from 1 January 2019.
Newspapers and sports facilities will continue to be taxed at the 9% VAT rate, and the VAT rate on e-books and electronically supplied newspapers is being reduced from 23% to 9% with effect from 1 January 2019.