Tax Update: Key Features of Budget 2018

10 October 2017

The 2018 Irish budget has been announced. Draft legislation is expected to be published on 19 October 2017. Changes to rates of Irish stamp duty and tax relief for onshoring of intellectual property have now taken effect.

Key features relevant to inward investment and international tax include the following:

Corporate tax rate

Continued unwavering commitment to Ireland’s 12.5% corporate tax rate. An update to Ireland’s international tax strategy has also been published and is available here

Tax amortisation

A restriction on the tax relief for tax amortisation on intangibles and interest cost associated with the purchaser to give a base tax rate of 2.5% on intangible income. The OECD project on base erosion and profit shifting has driven non-US intellectual property from being owned offshore to onshore by Irish tax resident companies and Irish branches of non-resident companies. The recent review of Ireland’s corporate tax code (the “Coffey Report”) highlighted that in 2015 there has been a €26b increase in gross trading profits attributable to intangible assets. In an effort to balance the desire for groups to onshore IP to Ireland but ensure a minimum tax rate on income from the exploitation and management of intangible assets, it is proposed that tax amortisation on intangible assets and related interest expense will be limited to 80% of the income arising from the intangible asset that can be taxable at 12.5%.

Commercial property tax changes

Increase in rate of stamp duty to 6% on commercial Irish real estate. Following on from the introduction of a tax charge on certain previously tax exempt funds invested in Irish real estate in Budget 2017, the Minister has sought to tap the increase in commercial property values by lifting stamp duty to 6% on Irish property conveyances. Stamp duty on residential property remains at 1% for the first €1m of consideration and 2% thereafter. Conscious that the purchase of brown field and other sites without the benefit of a residential building contract would be stampable, a stamp duty refund scheme for sites put to residential development is to be introduced.  Unlike gains tax, the mere entering into commercial real estate contracts before 11 October 2017 is unlikely to avoid the increased rates.

New share incentives

Introduction of a new share incentive for “key employee engagement” for non-quoted companies that will cause gains to be taxed at 33% rather than subject to income tax, PRSI and universal social charge at rates of up to 40%, 4% and 8% respectively.

Capital gains tax

Relief from Irish capital gains tax on certain property transactions. Currently, Irish and other European Economic Area real estate purchased between 7 December 2011 and 31 December 2014 and held for 7 years, is exempt from Irish capital gains tax at 33% in respect of the portion of the gain attributable to the 7 year period. It is proposed to reduce this holding period to 4 years.

Share transactions

Issue of a consultation paper on stamp duty on share transactions, possibly with a view to abolishing or reducing the rate of stamp duty on share transactions. Currently, Ireland applies stamp duty of 1% on transfers of shares in Irish incorporated companies but certain deposit receipt programmes for shares listed on overseas markets are outside the scope of the charge.  There is also an exemption for shares purchased on the Enterprise Securities Market of the Irish Stock Exchange.

Sugar drinks tax

Introduction of a sugar tax on soft drinks at 20 cents per litre with a sugar content of between 5 and 8 grams per 100ml and 30 cents per litre on higher than 8 grams per 100ml.

For more information on the aspects of Budget 2018 and how they could potentially affect your business, please 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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