The Irish Government has published its 2019 Finance Bill, which introduces changes to a number of SME-targeted tax incentives and implements a range of measures announced in this month's Budget.
Finance Minister Paschal Donohoe said: "The Finance Bill 2019 sets out the legislative provisions to bring effect to the tax measures announced in Budget 2020 against the background of uncertainty posed by Brexit. Nevertheless we are safeguarding the hard won progress of recent years in stabilizing the public finances."
"The Finance Bill implements a range of targeted changes including specific measures to support business and to address climate change. The Bill also contains a number of anti-avoidance and administrative changes to the tax code in order to protect and enhance the integrity of our tax base."
The Finance Bill provides greater detail on the Government's proposed changes to the Key Employee Engagement Programme (KEEP). Under KEEP, gains realized on the exercise of qualifying share options by employees and directors are not subject to income tax, Universal Social Charge (USC) or Pay Related Social Insurance and are instead subject to capital gains tax (CGT) on the subsequent disposal of the shares.
Finance Bill 2019 will amend the definitions within the legislation relating to qualifying companies and holding companies, so as to allow companies that operate through a group structure to qualify for KEEP. It will amend the conditions relating to qualifying employees to allow for part-time/flexible working and movement within group structures as business needs dictate, and to allow existing shares to be re-used for KEEP rather than requiring the issuing of new shares when KEEP options are exercised.
These changes will be subject to a commencement order as, in line with EU state aid rules, the Government must notify the European Commission of the measures.
The Finance Bill will also reform the Employment and Investment Incentive (EII), which provides tax relief for investment in certain corporate trades. Currently, the incentive allows an individual investor to obtain income tax relief on investments, up to EUR150,000 a year, in each tax year up to 2021. Relief is available to an individual up to a maximum of 30 percent of the amount invested, with a further 10 percent relief available after the third year of investment, subject to certain circumstances.
Under the Finance Bill, the level of relief will be increased, meaning that full income tax relief of 40 percent will be provided in the year the investment is made. This change will be effective from October 8, 2019. The annual investment limit will be increased from EUR150,000 to EUR250,000, and to EUR500,000 in the case of those who invest for a minimum period of 10 years.
The Finance Bill also provides for:
- The introduction of anti-hybrid rules, to apply to all corporate taxpayers from January 1, 2020, to prevent arrangements that exploit differences in the tax treatment of a financial instrument or an entity under the tax laws of two or more jurisdictions to generate a tax advantage;
- The introduction of direct references to the latest OECD Transfer Pricing Guidelines in Irish legislation, and an extension of the scope of the transfer pricing rules to cover certain non-trading and capital transactions, along with SMEs, albeit with reduced documentation requirements;
- The transposition into Irish legislation of the EU Directive on Administrative Cooperation, by introducing a mandatory disclosure regime for certain cross-border transactions that could potentially be used for aggressive tax planning;
- Amendments to the research and development (R&D) tax credit, to increase the credit from 25 percent to 30 percent and to enhance the method used to calculate the payable element of the credit, in the case of small and micro companies;
- The introduction of a debt cap on an Irish Real Estate Fund (IREF), with any interest on debt in excess of that cap giving rise to an adjustment; and the introduction of a financing cost ratio on an IREF, with any interest costs in excess of that amount giving rise to an adjustment – in both cases, the adjustment is that the excess amount is charged to tax in the hands of the IREF;
- The introduction of a requirement on a Real Estate Investment Trust (REIT) that the REIT must either reinvest the proceeds of a property disposal in the REIT property business or distribute the proceeds within a 24-month period; amounts not reinvested or distributed will fall to be treated as part of the REIT's property income, 85 percent of which must be distributed annually – distributions comprising the proceeds of property disposals are to be subject to dividend withholding tax;
- An increase in the bank levy from 59 percent of deposit interest related tax (DIRT) payments in base year 2015 to 170 percent of DIRT for base year 2017;
- An increase in the stamp duty rate on non-residential property transfers from six percent to 7.5 percent with effect from October 9, 2019;
- The extension of the Special Assignee Relief Programme (SARP) and the Foreign Earnings Deduction (FED) to the end of 2022;
- The application of the 13.5 percent rate of VAT on food supplements, with exemptions for foods for specific groups and particular vitamins and minerals, which will remain zero rated;
- A EUR150 increase in the Earned Income Credit for the self-employed to EUR1,500;
- An increase in the Group A tax-free threshold for capital acquisitions tax – which broadly applies to transfers between parents and their children – from EUR32,000 to EUR335,000, for gifts and inheritances received on or after October 9, 2019;
- The extension of the Help to Buy incentive for first-time buyers in its current form to the end of 2021; and
- The extension of the Living City Initiative, a tax incentive aimed at the regeneration of historic inner cities, to the end of 2022.
