The Irish Government has acted deftly in its 2021 Budget, in providing targeted reliefs to businesses.
With little fiscal room at its disposal this year, the Government has opted to instead ensure that businesses and entrepreneurs have the right measures in place to invest in Ireland with confidence.The Budget features extensions and improvements to existing corporate tax and capital gains tax relief schemes and announces that a new tax relief for the digital gaming sector is on the horizon.
Knowledge Development Box
As expected, the Government announced that it will extend the Knowledge Development Box (KDB) regime for a further two years, until the end of 2022.
Launched in 2016, the KDB is an attractive tax relief measure that grants companies engaged in the development of intellectual property a concessionary rate of corporate tax of 6.25%.
This rate — half Ireland’s 12.5% corporate tax rate — is levied on income derived from patents, copyrighted software, and, in the case of smaller companies, other intellectual property that is similar to an invention that could be patented.
Capital Gains Tax changes
The Government has also announced that it will ease the rules for the capital gains tax relief for entrepreneurs, which cuts the rate of capital gains tax on the disposal of qualifying business assets from 33% to 10%.
There are several conditions to access the regime. To provide flexibility to business leaders, the Government has now announced that it will ease one of these conditions.
Presently, a person must have owned at least 5% of the shares in the company for a continuous period of three years in the five years immediately prior to the disposal to be eligible.
The Government intends to amend the ordinary share-holding requirement so that an individual who has owned at least 5% of the shares for a continuous period of any three years qualifies for the relief.
Other Tax Relief Measures
The Government has announced that it is to develop a new tax break for the digital gaming sector, in a bid to carve out a new niche for Ireland. The measure will be developed this year and launched from January 2022.
The Government has also announced that it will extend other tax breaks:
- The Section 481 (Film Tax Credit) Regional Uplift scheme is being extended by one year;
- The Farm Consolidation (Stamp Duty) Relief will be extended until the end of 2022; and
- The Consanguinity (Stamp Duty) Relief will be extended until the end of 2023.
In addition, the Government has confirmed that the Accelerated Capital Allowance scheme for energy-efficient equipment is being extended for three years to December 31, 2023. The scheme is particularly attractive in enabling companies to immediately deduct the cost of eligible investments against their profits for the year.
Hospitality Sector Tax Reliefs
Building on the earlier cut to Ireland’s headline value-added tax rate, from 23% to 21% until February 2021, the Irish Government has said that the lower rate of VAT will be restored for the hospitality and tourism sector. The sector will be propped up from November 1 with a 9% rate, in place of the current 13.5% rate, until the end of 2021.
Finally, the Government has announced a new support scheme for businesses particularly affected by the impact of the COVID-19 pandemic — the Covid Restrictions Support Scheme (CRSS) — which is targeted at such consumer-facing businesses that have been affected by trading restrictions.