Tax Developments Promoting

Growth of Indigenous Business

and Attracting Foreign Direct

Investment

Jackie Masterson Liam Kenny

Overview of

Presentation

• Tax Developments Promoting Growth for

Indigenous Business

• Tax Developments Attracting Foreign

Direct Investment

Tax Developments Promoting Growth for

Indigenous Business

Jackie Masterson

Agenda

• Corporation Tax

Exemption

• New & Back to

Work Hires

• EIIS

• VAT update

Tax Exemption for

Start-Ups

Corporation Tax

Exemption

• Relief from corporation tax for 3 years

• New company carrying on new trade

• Total profits:

• ≤ €320,000; CT may reduce to Nil

• > €320,000 ≤ €480,000 CT rate <12.5%

• 2011 onwards relief linked to PRSI

contributions

Corporation Tax

Exemption

• Qualifying Trade:

• Commenced by new company

• 1st January 2009 – 31st December 2014

• “New” = incorporated on / after

14th October 2008

Corporation Tax

Exemption

• Excludes:

• Trades previously carried on in Ireland by

another person

• “Excepted” Trades – s.21A

• Professional Services Companies – s.441

• Certain trades specified in EU Regs

• Anti-avoidance -associated companies

Corporation Tax

Exemption

• The Relief

• Total corporation tax ≤ €40,000

• Relief lesser of:

• CT referable to qualifying trade

• Specified contributions

• Specified contributions per employee – lesser of:

• PRSI paid

• €5,000

• NB PRSI ceiling change retrospective (1 Jan 2011)

• Marginal relief CT > €40,000 < €60,000

Example-Tax

Exemption for Start-

Ups

• Case I income – Shop A (new) €100,000

• Case I income – Shop B

(previously carried on as sole trader) €50,000

• Case V rents €20,000

• Total Income €170,000

• Tax Payable

• €150,000 @ 12.5% €18,750

• €20,000 @ 25% €5,000

€23,750

Example

• Total Corporation Tax < €40,000

• Relevant Corporation Tax

(€23,750 - €5,000) €18,750

• Referable to Income from Qualifying Trade

€18,750 x €100,000/€170,000 - €20,000) = €12,499

• Relief Available = €12,499

• Specified Contributions > €15,000

• Net Corporation Tax Payable =

€11,250

New & Back to Work

New & Back to Work

Hires

1. Employer Job (PRSI) Incentive Scheme

• Introduced 2010; extended to 2012

• Employer PRSI Exemption for up to 18

months

• Scheme Criteria

• Include as contribution for s.486C

New & Back to Work

Hires

2. Revenue Job Assist / Long Term Unemployed

• Unemployment > 12 months

• In receipt of certain benefits

• Employer and employee incentive

Employer

• Double deduction to employer

• Emoluments/PRSI for 36 months

• Worth €2,500 p.a to company / €8,000 p.a to sole trade

(at min. wage)

New & Back to Work

Hires

• Employee

• Personal allowance for individual

• Additional tapering allowance for 3 years

• Individual plus each qualifying child

• 20% rate payer worth €1,524 over 3 years

New & Back to Work

Hires

3. Back to work enterprise allowance (BTWEA)

• Aimed at certain unemployed, lone parents, social

welfare recipients

• Pursue self employment

• Retain social welfare payments up to 2 years

• Benefit not taxed

• Form BTW2

New & Back to Work

Hires

4. Back to work short term enterprise allowance

• Become unemployed / immediate support

• Pursue self employment

• Retain job seekers benefit

• Allowance = jobseekers benefit

• Max period of 1 year

• Benefit is taxed

• Business Plan must be approved

• Form STEA1

New & Back to Work

Hires

5. Job Bridge

• Internship of 6-9 months

• Individual sign on for at least 3 months

• €50 per week additional to participants

New & Back to Work

Hires

6. Succeed in Ireland

• Finders fee

• Online referral network

• €1,500 - €3,000 per sustainable job

• www.connectireland.com

EIIS

EIIS

• Replaces BES

• Replaces seed capital relief

• New legislation

• Some provisions retained

• Key differences

EIIS – Key Changes

• Qualifying Trade

• Broader range than BES

• Some exclusions remain e.g.

• Dealing in shares

• Dealing in land

• Forestry

• Hotels

• Nursing Homes

• Professional service companies

• Easier for green energy companies

EIIS

• Cap on total EIIS investment

• €10m (previously €2m)

• €2.5m per annum (previously €1.5m)

• Holding Period

• 3 years (from 5 years)

EIIS

• Income Tax Relief

• Maximum investment €150,000 per annum

• 30% relief (from 41%)

• 11% additional – after 3 year period

• Employment levels/R&D

• HIE – 30% only

EIIS – Provisions

Retained

• Investor connection with the company

• Qualifying company – size:

• Micro/small – located anywhere

• Medium:

• Assisted area or

• Start up stage – located anywhere

• Qualifying company

• Control

• Subsidiaries

Seed Capital

Seed Capital

• Encourage employees to set up own business

• Maximum subscription €600,000

• Maximum relief in any year €100,000

• Refund of tax in previous 6 years

• Individual – requirements:

• Employment with company

• Share capital – new and other companies

• Income sources – Schedule E

Seed Capital – Key

Changes

• Removal of limitation on qualifying trades

• Permitted limit of non schedule E income

• €50,000 (previously €25,000)

VAT Update

VAT Update

• Alternative to bi-monthly returns?

• Turnover dropping de-register?

• Cash receipts basis

• Continuous supplies – RFPs

• Bad debts

• VAT 13B

• Conference accommodation /CO2

vehicles

VAT Update

• Place of supply of services

• Temporary 9% VAT rate

• Revised Pharmacists Scheme – Ebrief

41/12

• Receiverships

• Electronic Invoicing

• Mandatory E-Filing

Tax Developments Attracting Foreign

Direct Investment

Liam Kenny

Topics to be Covered

• Foreign Earnings Deduction (FED)

• Special Assignee Relief Programme (SARP)

• R&D Tax Credits – FA 2012 Essentials

• Group Losses – Recent Developments

Foreign Earnings

Deduction (FED)

• FED – reintroduced by FA 2012 to support companies'

efforts to expand into BRICS countries

• BRICS countries (Brazil, Russia, India, China, South

Africa)

• Operate for three years with effect from 1 January 2012

• Available where individuals work 60+ days in a 12 month

period in any of the BRICS countries

• The individual's taxable income is reduced accordingly

Foreign Earnings

Deduction (FED)

• Deduction of taxable salary, not USC

• Deduction = No. Qualifying Days x Qualifying Income

365

• Qualifying days = 1 of at least 4 consecutive days

• Capped @ €35,000 deduction

• Max income tax saving €35k @ 41% = €14,350

Foreign Earnings

Deduction (FED) -

Example

• Mary is Irish resident

• She is working on a project in Brazil throughout 2012,

spending at least 3 weeks at a time working in Brazil,

therefore 90 qualifying days in total

• Annual remuneration package: salary of €150,000,

taxable share award of €20,000 and share option gain of

€10,000

• FED available:

- Qualifying income €180,000 * 90/365 days = €44,380

- Deduction capped at €35,000

- Reduction of taxable salary of €35,000 and repayment of income

tax of €14,350 (not USC)

Foreign Earnings

Deduction (FED)

• FED is regarded as a „specified relief'

• Not applicable to Benefit-in-Kinds (BIKs)

• Employee/director must make claim for FED in personal

income tax return to obtain relief each year

• FED cannot be claimed where the following reliefs apply:

- Special Assignee Relief Programme (SARP)

- New Employee R&D Tax Credit Relief

Special Assignee Relief

Program (SARP)

• Objective - attract key talent to Ireland

• Persons arriving in Ireland in 2012, 2013 and 2014

• Employers incorporated and tax resident in treaty

country ("relevant employer")

• N/a branches & unincorporated entities

• Employed by relevant employer for 12 months prior to

arrival in Ireland

• Employee must perform substantially all duties in Ireland

for 12 consecutive months

Special Assignee Relief

Program (SARP)

• Employee - not ROI tax resident in 5 tax yrs pre-arrival

• Max 30 overseas working days

• Min base salary of €75,000

• Tax free deduction from remuneration

(A-B) x 30%

A = total remuneration (cap €500k)

B = €75k

• Max annual relief (€500k - €75K) x 30% x 41%= €52,275

• Claim max of 5 years only

• N/A to USC or PRSI

Special Assignee Relief

Program (SARP)

If claiming SARP

• Cannot claim :

• Remittance basis

• R&D key employee relief

• Cross border worker relief

• FED

• Can claim :

• Travel costs – return trip

• School fees max €5k

Research &

Development (R&D)

Positive changes enacted by Finance Act 2012

to R&D tax credit regime:

1. Employee Remuneration

2. Base Year Relaxation

3. Outsourcing Rules Relaxed

Employee

Remuneration

• Option now to reward "key" employees involved in the

R&D process

• Key Employee:

• Not director or director of a connected company

• Not holding material interest or connected to person who has

material interest

• 75% duties of employment are R&D

• Credit can't reduce the employee's effective rate of tax to

below 23% - employee claim required

• The aggregate surrendered to employees must not

exceed the company's CT liability for the period (prior to

any R&D tax credits)

Base Year

• Positive changes for SMEs

• 1st €100k of qualifying spend – ignore base year

• Tax credit will continue to apply to incremental R&D

expenditure in excess of €100k

• Therefore additional €25,000 per annum of tax credit

(effectively cash) available to reinvest

Outsourcing

• Positive changes for SMEs who may not have capacity to

undertake all R&D activities in-house

• Previously sub-contracted spend restricted to 10% of total

spend (or 5% of total spend where sub-contracted to third

level institutions)

• Limit now increased to greater of:

• 5%(universities)/10%(others) of total R&D spend; or

• €100,000

• Company must notify third party provider it cannot claim

R&D tax credit also

Research &

Development (R&D)

Other Recent Developments:

•Substantial amount of Revenue Audits being conducted:

- self review approach adopted by Revenue

•Significant focus on contemporaneous back-up documents

•Claim for R&D Tax Credits must be made within 1 year of

the end of the accounting period in which expenditure is

incurred

•Claim for year ended 31 December 2011 must be made by

31 December 2012 – only 3 months left!

Group Loss Relief

• Two companies are members of a group if one is a 75%

subsidiary of the other or both are 75% subsidiaries of a

third company

• Group relief is available to Irish companies, in respect of

certain losses incurred by their non-Irish subsidiary

companies

• Losses to be surrendered between group companies:

- Trading Losses;

- Certain excess capital allowances;

- Management expenses; and

- Charges on income

Group Loss Relief

• Current year losses only

• No capital losses surrendered

• Losses only grouped against profits of a corresponding

accounting period

• Restriction on group loss relief if Corporation Tax

Returns filed late:

- 25% restriction delay is less than 2 months

- 50% restriction delay is greater than 2 months

Group Losses - Recent

Development

• The previous corporation tax group relief provision

required all members of a loss group to be resident in:

- Ireland;

- the EU; or

- an EEA member state (with which Ireland had a tax treaty)

• Group relief provisions have been extended such that a

group will now include a company tax-resident in a double

tax treaty country or listed on a recognised stock

exchange, i.e. ownership may be traced through such

group companies

• Ireland has DTA‟s with 66 jurisdictions

Group Losses - Recent

Development

• Principal class of shares must be substantially and

regularly traded on a recognised stock exchange

• Amendment only applies to companies with accounting

periods ending on or after 1 January 2012

• Apportionment rules are applicable for accounting periods

which straddle this date

Questions

Thank You