Finance Act 2010 contains a number of measures to address the public finance deficit and create employment.
The significant changes and the retention of existing tax rates and allowances under each of income tax, corporate and capital taxes, and indirect taxes are detailed below.
Doing business in Ireland
The changes to the tax rules to enhance the attractiveness of Ireland as a location to do business are as follows:
- Provision of measures to facilitate the attraction of Ireland for the development of Islamic finance. This covers any financing arrangement that is compliant with the principles of Shari’a law. The tax treatment applicable to conventional finance transactions will be extended to embrace Islamic finance.
- The existing R&D tax credit is being amended to cover situations where a company carries out R&D activities in different facilities in separate geographical locations and the activities in one of those facilities is permanently discontinued.
- Enhancement to the existing tax treatment of dividends received by companies in Ireland. Foreign dividends paid out of trading profits from non tax treaty countries are subject to tax at 12.5% rather than 25%. There is a tax exemption for foreign dividends from trading income from portfolio investments and a simplification in the arrangements under which foreign dividends are treated as sourced from trading or non trading profits.
- The Remittance Scheme for foreign employees undertaking an assignment in Ireland has been extended to include both EU and EEA nationals and the condition that an individual must remain in Ireland has been reduced from 3 years to 1 year.
- Enhancement of double taxation network to include new treaties with Bahrain, Belarus, Bosnia & Herzegovina, Georgia, Moldova and Serbia.
- Relaxation of withholding tax rules on royalties.
- Enhancement of the capital allowances scheme for Intangible Assets to include certain computer software, registration costs and pre-trading expenditure.
- Relaxation of C2 regulations for major contractors.
- Extension of the existing 3 year tax exemption scheme to new start up companies who commence to trade in 2010.
Abolition of Certain Tax Reliefs
- The remittance basis of taxation is longer available to individuals who are not ordinarily resident but domiciled in Ireland.
- Capital allowances for childcare facilities and relief for long term care policies have also been abolished.
- Tax relief for passive investors for investment in significant buildings or gardens is terminated for new investments.
- 1% levy on pension products has been abolished.
- Funds left in a PRSA at retirement date will now be counted as part of the lifetime fund threshold.
Main anti-avoidance measures introduced
- Transfer pricing rules have been introduced for trading transactions between associated persons. The rules recognise the arm’s length principle set out in the OECD Transfer Pricing Guidelines and are applicable to large entities only. The companies to which the new provisions apply must retain documentation that supports the transfer pricing policies that have been adopted. The new rules apply for accounting periods commencing on or after 1 January 2011 in respect of transactions the terms of which have been agreed on or after 1 July 2010.
- NAMA windfall tax. Although this is not new (introduced in the NAMA legislation) it levies an 80% windfall tax on the increase in value of land caused by rezoning and has been tightened up to include land that has planning permission granted in contravention of the local development plan. It also now exempts a site with a value of less than €250,000 and which is not larger than an acre.
- Buy back of shares by public companies are no longer automatically subject to capital gains tax treatment.
- No changes have been made to income tax rates which remain at 20% and 41% respectively nor to the levy rates introduced in April 2009.
- A new universal social contribution will replace employee PRSI, the Health Levy and the income levy in order to try and tax individuals on a more progressive and equitable basis from 2011 onwards.
- An annual Irish domicile levy will be introduced amounting to €200,000 for high net worth non resident individuals in order that every wealthy non resident but Irish domiciled individual makes a contribution in the current times of national financial hardship. This will apply to such individuals with worldwide income of at least €1 million and Irish capital assets of at least €5 million.
- Mortgage interest relief has been extended to 2018 for those who take out mortgages before 31 December 2011. Transitional measures will be provided for mortgages taken out in 2012. In order to provide assistance to those individuals who find themselves in negative equity, individuals whose relief would have expired in 2010 will continue to qualify for the relief at the existing rates for a further seven years. No mortgage interest relief will be available on loans taken out from 2013 and the relief will cease to apply with effect from 2018.
- The high earners restriction on reliefs is to be amended for 2010 to ensure that those subject to the full restriction will have an effective income tax rate of 30% plus PRSI and levies as compared to 20% previously. The revised threshold levels for 2010 commence at adjusted income levels of €125,000 with full restriction applying at €400,000 and above.
- The government intends introducing a property tax and site valuation methodology in respect of this will commence shortly. No date has been confirmed for its introduction.
- In accordance with the recommendations of the Commission on Taxation, the first €200,000 of pension lump sums will remain tax free. An announcement on the position in respect of the remainder of pension lump sums is expected early in the New Year.
Corporation Tax and Capital Taxes
- The Minister was adamant that the existing 12.5% corporate tax rate on trading profits will not change describing it as an “international brand” and a “powerful expression of enterprise ethos”.
- The three year start up exemption from taxation for profits and capital gains of new companies (other than companies involved in land dealing, petroleum and mineral activities or professional services companies) incorporated after 14 October 2008 has been extended to qualifying start up companies that commence to trade in 2010 (provided that the company’s taxable profits per annum do not exceed €320,000).
- The Innovative Task Force will be exploring the existing research and development and intellectual property tax credit regimes with a view to including improvements in the Finance Bill.
- The 100% accelerated capital allowances for companies have been extended to include three additional categories namely refrigeration and cooling equipment, electric mechanical systems, and catering and hospitality equipment.
- To address climate change, a carbon tax of €15 per tonne has been introduced for fossil fuels. This will be effective from tonight for petrol and diesel and from next May for kerosene, fuel oil and natural gas. Exemptions from the tax will only be available to participants in the EU Emissions Trading Scheme.
- There has been no change in the existing rates of capital gains tax, stamp duty, or capital acquisitions tax nor in pay and file deadlines.
- There are new administrative arrangements for CAT to simplify compliance. The return filing dates have now been aligned with income tax filing dates whilst the secondary liability and 12 year charge on property has been abolished.
- The VAT rate will revert to 21% from 1 January 2010 for all goods and services which are currently subject to the existing rate of 21.5%.
- Excise duty on alcohol has been reduced effective from midnight tonight as the Minister indicated that this is a contributory factor to the alcohol sales lost to Northern Ireland which account for 44% of cross border trade. The VAT inclusive reductions are 12 cent for a pint of beer or cider, 14 cent for a measure of spirits, and 60 cent for a bottle of wine.
- A car scrappage scheme will be introduced at the start of 2010 for the duration of that calendar year whereby relief of up to €1,500 will be available in instances where a car which is ten years old or older is scrapped and a new car is purchased which falls within the qualifying emissions brackets.
The existing VRT exemption for environmentally friendly electric vehicles and hybrid vehicles is being extended for a further two years until 31 December 2012.