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Tax Legislation Changes Impacting Businesses in 2024

The 2023 Finance Act introduces a number of changes which will impact on Irish businesses and the economy. Our Tax team reviews some of the main changes, focusing on those which may affect businesses operating in the built environment sector.

The Finance (No.2) Act 2023 (the Act) introduced several important changes to Irish tax legislation, including changes to integrate policies that have been driven at an EU and OECD level. We examine the scope of the most significant changes that businesses should be aware of, for the coming year and beyond. While the changes for the built environment sector were limited, we highlight some relevant property related measures that may impact on developers and property owners in Ireland.

Pillar Two

Perhaps the biggest talking point from the Act for companies generally, is its transposition of the EU Minimum Tax Directive 2022. This Directive introduced a framework for the implementation of the OECD Pillar Two agreement, known as the Global Anti-Base Erosion (GloBE) rules. The GloBe rules provide for a global minimum effective tax rate (ETR) of 15% on profits for businesses that have an annual group/global turnover in excess of €750 million and are relevant to the very largest multinational and domestic businesses. Therefore, most companies operating in the built environment sector should not be impacted by these changes, unless they meet the threshold criterion and carry on trading operations taxed at 12.5%.

In implementing this Directive, Ireland has elected to introduce a top-up tax, known as a QDTT under the Pillar 2 rules, which will allow in-scope companies pay additional tax in Ireland to bring their effective tax rate up to the 15% global minimum standard. This means that in-scope Irish based group entities will pay a top-up tax to the Irish Exchequer, rather than to a tax authority outside of Ireland.

Intra-group financing

The Act introduces new measures concerning the payment of interest, royalties or distributions to associated entities/companies located in no-tax or zero-tax rate countries or countries that are on the EU non-cooperative list. These provisions are designed to prevent so called “double non taxation” i.e. an exemption from Irish withholding tax on payments which are not taxed in the hands of associated group companies due to the local tax rules in the relevant recipient country. It does this by disallowing the usual exemptions from withholding tax on these payments from 1 April 2024. In the case of distributions caught by this new rule, they will be subject to Irish withholding tax generally where the income, profits or gains from which the distribution is made were not subject to taxation. These new rules will impose a reporting obligation on the payor of interest, royalties or distributions for certain pre-existing arrangements from 1 January 2025. Where relevant, these provisions may have a significant impact on inter-group financing and clients may wish to consider potential re-structuring options.

Revenue compliance changes

The Act introduces a significant change to the taxation of share option schemes relevant to all companies that provide this form of employee share incentive. Employers are obliged to operate income tax, USC and PRSI on share option gains through the real-time PAYE system and to report on the exercise and/or grant of share options from 1 January 2024. This change is likely to result in a significant burden for affected employers operating existing share option schemes this year and beyond. We would advise employers to review their obligations.

In addition, new rules on the enhanced reporting of employee benefits by employers, which were legislated for in the Finance Act 2022, have come into effect from 1 January 2024. This represents an additional unwelcome compliance burden for employers who will need to familiarise themselves with the new rules and ensure their internal procedures comply with these requirements.

Residential Zoned Land Tax

Under the Act, the first liability date of the Residential Zoned Land Tax (RZLT), originally expected to be February 2024, is deferred for one year to 1 February 2025. This is to allow for the planned 2024 review of maps to take place and provide those affected with further opportunity to engage with local authorities on the mapping process. In addition, residential land subject to phased development under a local authority development plan or local area plan has been excluded from the RZLT. This deferral is welcomed by stakeholders in the built environment sector.

To recap, the RZLT was introduced in Finance Act 2021 to encourage building residential homes and increasing the residential accommodation supply. At a very high level, the tax is calculated at 3% of the market value of land within its scope.

Vacant Homes Tax

In line with the Government’s priority of tackling housing vacancy, the rate of the Vacant Homes Tax (VHT) is increasing significantly from 3 times to 5 times a property’s existing base Local Property Tax (LPT) liability. This increase takes effect from the chargeable period commencing 1 November 2023. VHT applies to residential properties occupied as a dwelling for less than 30 days in a chargeable (12 month) period.

Other property related measures

  • An increase in the stamp duty exemption applying to leases of residential property for less than 35 years has been introduced. The maximum annual rent threshold has been increased from €40,000 to €50,000.
  • Ready to pour concrete used in the manufacture of certain precast concrete products is removed from the Defective Concrete Products Levy (DCPL) with effect from 1 January 2024. A refund scheme has been introduced for specified persons who have paid the DCPL on this concrete in the accounting period 1 September 2023 to 31 December 2023.
  • The Help to Buy scheme is extended at current rates to the end of 2025. Properties purchased through the Local Authority Affordable Purchase (LAAP) scheme may now access the scheme.
  • A new temporary income tax relief, in place until 2027, will be available for individual landlords of rented residential premises. The new tax credit available each year cannot exceed the standard rate of tax, currently 20%, applied to the ‘relevant amount’ i.e. the profits from qualifying premises. The maximum tax credit available to the landlord is €600 for 2024, €800 for 2025, €1,000 for 2026 and 2027 so its impact is expected to be minimal.
  • The annual Rental Tax Credit has been increased from €500 to €750 for individual renters, or €1,500 per year per jointly assessed married couple or civil partners for the tax year 2024 and 2025. Payments made by parents regarding “digs” or rent-a-room accommodation for their children to attend an approved third level course, now qualify for the credit.
  • A one-year mortgage interest tax relief scheme has been introduced for taxpayers for their mortgage on their principal private residence where the outstanding mortgage balance was between €80,000 and €500,000 on 31 December 2022 and the taxpayer is compliant with LPT requirements. The relief is available at the standard rate of income tax (20%) for the increase in the interest paid between 2022 compared to 2023, with maximum relief capped at €1,250.

Ones to watch

It is worth noting two other material developments in Irish tax on the horizon, namely a proposal to bring in a dividend participation exemption and new country-by-country reporting requirements.

A participation exemption for inbound dividends will be introduced in 2024. Adoption of a full dividend participation exemption regime in line with other EU and OECD countries is envisaged. This would represent a significant improvement in Ireland’s competitiveness and its attraction as a holding company jurisdiction.

The EU (Disclosure of income tax information by certain undertakings and branches) Regulations 2023, commonly referred to as public country-by-country, or CbC tax reporting obligations will apply from 22 June 2024. This means that corporate groups with an annual turnover of €750 million or more in each of 2 consecutive financial years will be obliged to publish certain information if they are either EU parented or otherwise have EU subsidiaries or branches of a certain size. The report must include information on all members of the group (i.e. including non-EU members) and contain certain tax and other financial information of the activities performed in each country. However, importantly, the CbC reporting obligations will not apply to groups operating solely within a single EU Member State or to Irish branches where the net turnover does not exceed €12 million in the preceding two consecutive financial years.

For more information and expert advice on understanding and navigating the potential impact of these changes in 2024, contact a member of our Tax team.

The content of this article is provided for information purposes only and does not constitute legal or other advice.

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