Under the National Policy Statement on Entrepreneurship in Ireland 2014 it was identified that the business and tax environment for entrepreneurs and investors had become more challenging and that the right conditions must be implemented, with both tax rates and incentives supporting entrepreneurship.
Entrepreneur’s Relief Scheme
Finance Act 2015 ensures that Ireland shall remain internationally competitive as a location and has identified the Entrepreneur’s Relief Scheme as an incentive for growth and investment. The relief which has been introduced into the Irish tax legislation offers a reduced rate of Capital Gains Tax (“CGT”) of 20% (standard rate of Irish CGT is 33%) on the disposal by an individual of his /her business assets, up to the lifetime limit of €1 million. The new relief became effective from 1 January 2016.
To qualify for the relief, the business assets which include shares in a corporate entity must have been owned by the individual for a continuous period of at least 3 years in the 5 years immediately prior to the date of the disposal.
Where the individual is disposing of shares in a company, two additional conditions must be satisfied:
- The individual must have owned at least 5% of the shares in the company; and
- The individual must have worked for the company (50% or more of their total working time) in a managerial capacity either as a director or as an employee for a period of 3 years in the 5 years immediately prior to the date of the disposal.
Business assets relating to the holding of investments (with certain exceptions for group holding companies) or the development of land do not qualify for the relief.
Income & Corporate Tax
The Finance Act 2015 takes further measures to reward the role of the Entrepreneur in Ireland’s economic recovery program by introducing the Earned Income Tax Credit and extending the Three-Year Corporation Tax Relief.
The former whichhas taken effect from 1 January 2016 aims to reduce the income tax disparity between the employed and self-employed and will be worth €550 per annum to those who do not have access to the PAYE Credit, i.e. the self – employed.
The latter was originally introduced to reduce the corporation tax burden for the first three years of trading and will continue to be available for start up companies commencing before 31 December 2018.
Entrepreneurs Central To Irish Economy
The Minister for Finance Michael Noonan in his Budget Speech praised the role of the entrepreneur, acknowledging that their position has been central to Ireland’s economic recovery. The Finance Act 2015 which has been welcomed by entrepreneurs rewards their efforts and provides a business and tax environment where it will be easy to create and grow a new business.
Please note that this commentary does not purport to be a comprehensive review of the entrepreneurial incentives introduced in The Finance Act 2015. Detailed appropriate tax advice should be sought with regard to same.