Delivering a Budget he described as "developed in the shadow of Brexit," Ireland's Finance Minister steered clear of income tax cuts but did announce improvements to a number of small business tax incentives and an increase to the carbon tax.
Paschal Donohoe tabled the 2020 Budget on 8 October 2019. The Budget had been based on the assumption that the UK will leave the EU on 31 October without a deal.
Donohoe stressed that, in preparing for no-deal, the Government can ensure that it:
"has the necessary resources at its disposal to meet the impact of Brexit, while keeping our public finances on the credible and sustainable path they have been on since 2011."
In this context, Donohoe said that he
"will not commit to across the board personal tax cuts."
He explained that to do so
"at this time of economic uncertainty [could] potentially undermine the sustainability of our public finances," adding that "the unfunded tax cut of today is the unwelcome tax increase of tomorrow."
The Budget did however contain a number of improvements to existing tax incentives targeted at SMEs.
First, the Budget includes changes to the Key Employee Engagement Programme (KEEP), which is designed to help SMEs in Ireland compete with larger firms to attract and retain employees. It provides for a more advantageous tax treatment of gains arising on the exercise of qualifying share options. Under the Budget, various eligibility conditions will be eased.
Employment and Investment Incentive:
The Budget will also introduce changes to the Employment and Investment Incentive (EII), a tax relief that can be used by trading companies to attract equity-based finance from individuals. The change will allow for full income tax relief to be provided in the year of investment, rather than being split over years one and four as had previously been the case.
The annual investment limit for the EII will be increased to €250,000 and a new €500,000 annual investment limit will be introduced for investors who are prepared to invest in EII for 10 years or more.
Donohoe also announced enhancements to Ireland's research and development (R&D) tax credit, with a focus on SMEs. The credit will be increased from 25% to 30% for micro and small companies, and an improved method of calculating the limit on payable credit will be introduced.
A new provision will allow micro and small companies to claim the credit on qualifying pre-trading R&D expenditure before commencing to trade. Before a company begins to trade, the credit will be able to be offset against VAT and payroll taxes.
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Dividend Withholding Tax:
The Budget also confirmed that the dividend withholding tax (DWT) rate will be increased from 20% to 25% from 1 January 2020. From 1 January 2021, Revenue will introduce a modified DWT regime that will allow a personalised rate of DWT to be applied to each individual taxpayer.
Other Tax-Related Announcements:
- The Earned Income Credit for the self-employed will rise by €150 to €1,500;
- The Special Assignee Relief Programme (SARP) and the Foreign Earnings Deduction (FED) will be extended until the end of 2022;
- Following an external review of the capital gains tax entrepreneurial relief, no changes will be made to the scheme at present. However, the Department of Finance will consider the outcome of the review to determine any changes that could be made to better support entrepreneurs and entrepreneurial activity;
- The Government will introduce a relief from betting duty and betting intermediary duty for small bookmakers up to a limit of €50,000 per calendar year;
- The rate of stamp duty applicable to non-residential property was increased by 1.5% with effect from Budget night, and stamp duty at the rate of 1% will be applicable where a scheme of arrangement involving a so-called "cancellation scheme" is used for the sale of a company;
- The Help to Buy scheme for first-time buyers will be extended to the end of 2021;
- Changes will be introduced to the Real Estate Investment Trust (REIT) regime to ensure that an appropriate level of tax is paid on property gains by REITs;
- The lifetime Group A tax-free threshold which broadly applies to transfers between parents and their children under the capital acquisitions tax regime will be increased from €320,000 to €335,000;
- Previously announced anti-hybrid rules will be introduced in the Finance Bill, to apply to all corporate taxpayers from 1 January 2020;
- The rate at which the banking levy is charged will increase from 59% of deposit interest related tax (DIRT) payments in base year 2015 to 170% of DIRT for base year 2017; and
- The farm restructuring relief will be extended to the end of 2022