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Tax Facts 2016

The essential guide to Irish tax Index

Tax Facts 2016 ii Index

Tax Facts 2016 iii Tax Facts 2016 - The essential guide to Irish tax

Introduction This publication is a practical and easy-to- follow guide to the Irish tax system. It provides a summary of Irish tax rates as well as an outline of the main areas of Irish taxation. A list of PwC contacts is provided at the back of this guide should you require more detailed advice or assistance tailored to your specific needs.

Joe Tynan Tax and Legal Services Leader

Tax Facts 2016 1 Tax Facts 2016 – Editor’s page

Welcome to the latest edition of Tax Facts In line with OECD recommendations, Finance which has been updated for amendments Act 2015 introduces Country by Country For more information brought about by Finance Act 2015 which was (CbC) reporting requirements applying to contact: signed into law on 21 December 2015. Irish-parented multinational groups with consolidated revenues of €750 million or From a personal tax perspective, the principal more. The requirements apply for fiscal years changes are in the form of adjustments to the beginning on or after 1 January 2016. Universal Social Charge (USC) thresholds and rates together with an exemption from USC The Act also introduces a Knowledge for employees on employer contributions Development Box (KDB) which provides an made on the employee’s behalf to certain effective 6.25% corporation tax rate on profits approved pension plans (PRSAs). An income arising from qualifying assets (including tax exemption has also been introduced to copyrighted software and patented cover the provision by an employer of a inventions) where some or all of the related voucher or a non-cash benefit to a value not R&D is undertaken by the Irish company. exceeding €500 in a tax year. Fiona Carney A new Petroleum Production Tax has been Senior Manager Measures have also been introduced to assist introduced for oil and gas exploration t: 353 (0)1 792 6095 entrepreneurs, including a decrease in the authorisations awarded on or after 18 June e: [email protected] Capital Gains Tax (CGT) rate from 33% to 2014. Combined with corporation tax, this 20% for individuals applying to disposals of effectively increases the maximum rate of tax qualifying business assets. This new reduced payable on profits from productive fields from rate is subject to a lifetime chargeable gains 40% to 55%. limit of €1 million. Corporation tax relief for start-up companies has also been extended for a further three years.

Fiona Carney Senior Manager Tax Technical Centre

Tax Facts 2016 2 Business taxation

Corporation tax Losses companies resident in a ‘relevant territory’ being the EU, an EEA treaty country or Corporation tax is charged on the worldwide A trading loss incurred in an accounting another country with whom Ireland has a profits of companies that are tax resident in period may be offset against any of the double taxation agreement. In addition, in Ireland and certain profits of the Irish following: determining whether one company is a 75% branches of non-resident companies. ‘Profits’ • trading income (including certain foreign subsidiary of another company for the for this purpose consist of income (business or purpose of the group relief provisions, the trading income comprising active income and dividends taxable at the 12.5% rate) arising in the same period other company must either be resident in a investment income comprising passive ‘relevant territory’ or quoted on a recognised income) as well as certain capital gains. • trading income of the immediately stock exchange. preceding period Corporation tax rates • trading income of subsequent periods (to Branch income Rate the extent that the same trade is carried on). As above, Irish branches of foreign companies are liable to corporation tax at the rates that 12.5% Trading income (including To the extent not usable against trading qualifying foreign dividends paid income, a trading loss can be converted into a apply to Irish resident companies. No tax is out of trading profits but excluding tax credit which may be used to reduce the withheld on repatriation of branch profits to income of excepted trades) corporation tax payable on passive income the head office. and chargeable gains of the same period and 25% All other income, including income Company Residence of excepted trades a, non-trading the immediately preceding period. income and non-qualifying foreign A company is generally regarded as Irish dividends Alternatively, group relief may be claimed tax-resident if it is managed and controlled in whereby one group company is entitled to 33% Capital gains Ireland. This is the case irrespective of its surrender its trading loss to another member place of incorporation. of the same group. Both the claimant a an excepted trade is a trade consisting of trading operations or activities which are excepted operations. company and the surrendering company must Furthermore, the legislation provides that an Excepted operations include working scheduled minerals, be within the charge to Irish corporation tax. mineral compounds or mineral substances, working Irish incorporated company is to be regarded minerals, petroleum activities, and dealing in or developing To form a group for corporation tax purposes, as Irish tax resident unless it falls within land (other than such part which consists of construction both the claimant company and the operations). Special tax provisions apply to certain certain exceptions. The scope of these petroleum exploration licences granted after 1 January surrendering company must be resident in an exceptions has been scaled back significantly 2007 which increase the maximum rate of tax payable EU country or an EEA country with whom on productive fields from 25% to 40%. A new Petroleum in recent Finance Acts in response to Production Tax has been introduced for certain licences Ireland has a double taxation agreement international concerns raised regarding their granted on or after 18 June 2014 which increase the (‘EEA treaty country’). In addition, one implications. maximum rate of tax payable on profits from productive fields from 40% to 55%. company must be a 75% subsidiary of the other company, or both companies must be Under the Finance Act 2014 provisions, an 75% subsidiaries of a third company. The 75% Irish incorporated company will be regarded group relationship can be traced through as Irish tax resident. To ensure alignment with the treatment of company residence in double

Tax Facts 2016 3 Business taxation

tax agreements, there is one exception only to Application of Finance Act 2014 R&D credit this incorporation rule. If, under the provisions to Irish incorporated provisions of a double tax agreement, an Irish companies Ireland’s R&D tax credit is a very attractive incorporated company is regarded as tax relief and provides an overall effective The Finance Act 2014 provisions outlined resident in another territory, the company will corporation tax deduction of 37.5% on certain above have effect from 1 January 2015 for not be regarded as Irish tax resident. R&D expenditure. The types of expenditure companies incorporated in Ireland on or after which can be subject to this credit are Previously, there was also an exception where 1 January 2015. For companies incorporated extensive and include both revenue and the company concerned or a related company before that date, a transitional period applies, capital expenditure. R&D expenditure carries on a trade in Ireland and either (i) the meaning that the provisions apply only from qualifies for a tax credit of 25% in addition to company is ultimately controlled by persons the earlier of either: the normal deduction for R&D expenditure resident in the EU or another territory with (12.5%). (a) 1 January 2021, or whom Ireland has a double taxation Historically the credit was designed to agreement (‘treaty territory’) or (ii) the (b) the date, after 1 January 2015, of a change incentivise incremental R&D expenditure, company or a related company is quoted on a in ownership of the company in circumstances with 2003 fixed as the base year. Where a recognised stock exchange. However, Finance where there is also a major change in the company did not have R&D expenditure in Act (No 2) 2013 introduced a measure to nature or conduct of the business of the 2003 then the relief is calculated on the actual ensure that this exception would not apply if it company within the period which begins one qualifying expenditure incurred in the resulted in an Irish incorporated company year before the date of the change of accounting period under review. This volume being regarded as ‘stateless’ in terms of its tax ownership (or on 1 January 2015, whichever based approach has been extended to all residence by virtue of a mismatch between is later) and ends five years after that date. Ireland’s and another country’s residence companies for accounting periods rules. The measure provides that, where an The previous corporate tax residence commencing after 1 January 2015. provisions outlined above therefore continue Irish incorporated company is managed and The R&D credit can be used to generate a tax to apply to companies incorporated before 1 controlled in an EU or treaty territory and refund through a carryback against prior year January 2015 until 31 December 2020 at would not be regarded as tax-resident in any profits. In addition, repayment for excess latest. territory because (i) it is not managed and credits is available over the course of a controlled in Ireland, and (ii) it is not resident In the period to 31 December 2020, all groups three-year cycle. Repayments are limited to in that other territory because it is not will need to carefully monitor the corporate the greater of (a) the corporation tax payable incorporated in that territory, the company tax residence position of Irish incorporated, by the company in the preceding ten years or will be regarded as Irish tax-resident. This non-resident companies which do not satisfy (b) the payroll tax liability for the period in measure has effect from 23 October 2013 for the sole exception contained within the which the relevant R&D expenditure is companies incorporated in Ireland on or after Finance Act 2014 provisions. This includes, incurred and the prior year (subject to an this date and from 1 January 2015 for for example, considering the impact of any adjustment dependent upon previous claims). companies incorporated in Ireland before 23 proposed M&A transactions involving both October 2013. In addition, companies have the ability to change in ownership and business changes/ account for the credit “above the line” in the integration measures. Profit & Loss account, thereby reducing the unit cost of R&D, which is a key measurement

Tax Facts 2016 4 Business taxation

used when considering where to locate R&D The definition of IP assets includes the projects. This is extremely helpful to Irish For more information acquisition of, or the licence to use: subsidiaries of multinational corporations in on R&D tax credits • patents and registered designs terms of being able to compete with lower cost contact: jurisdictions. • trademarks and brand names

Outsourcing limits • know-how The incentive is directed towards in-house • domain names, copyrights, service marks activities and as such there are outsourcing and publishing titles limits for sub-contracted R&D costs. This limit • authorisation to sell medicines, a product of has been increased over the years to 15%. The any design, formula, process or invention increase is particularly aimed at smaller Stephen Merriman (and any rights derived from research into companies that do not have access to the Director same) required R&D expertise in-house. A further t: 353 1 792 6505 • goodwill, to the extent that it is directly enhancement in respect of externally e: [email protected] provided workers and collaborations that are attributable to qualifying assets under the control and direction of the relevant The range of qualifying intangible assets also R&D company would be welcome. includes applications for legal protection (for Planning tip! example, applications for the grant or Revenue Guidelines Ensure you avail of the cash refund available registration of brands, trademarks, patents, The Irish Revenue has recently published an on excess R&D tax credits. Claims must be copyrights etc). updated version of its R&D tax credit made within 12 months of the end of the Tax deductions are available for offset against guidelines. There are a number of positive period in which the expenditure is incurred. income generated from exploiting IP assets or comments in the update including more as a result of the sale of goods or services, detailed commentary on the type of software where the use of IP assets contributes to the development activities undertaken that may Intellectual property tax value of such goods or services. potentially qualify for the credit. There is also deduction confirmation regarding the treatment of base Companies acquiring Intellectual Property For all accounting periods beginning before 1 year expenditure in change of ownership (IP) can avail of significant deductions on January 2015, the aggregate deduction and situations. However companies should be certain capital expenditure. Tax depreciation related interest expense which could be aware that there is increased focus on the is available for capital expenditure incurred claimed in a given year could not exceed 80% documentation required to support a valid on the acquisition of qualifying IP assets. The of the related IP profits of the company as claim and some new statements that will deduction is equivalent to the amortisation or computed before such deductions. Finance undoubtedly result in Revenue seeking to depreciation charge on the IP included in the Act 2014 provides for an increase in this cap restrict certain costs that have typically been accounts. Alternatively, a company can elect from 80% to 100% of those profits with effect claimed by companies to date. to claim tax deductions over 15 years, at a rate for accounting periods beginning on or after 1 of 7% per annum and 2% in the final year. January 2015. Any excess deductions can be

Tax Facts 2016 5 Business taxation

carried forward and offset against IP profits in The profits on which relief is available are provision is made for using a “family of assets” succeeding years. This change will enable calculated using the following formula: and treating the combined assets as one many companies to claim the allowances and QE + UE x QA qualifying asset. related interest over a shorter period and will OE also serve to simplify the calculation of Profits of a specified trade allowances. Where: Specified trading activities for the purposes of In addition to the above change, the list of QE is the qualifying expenditure on the claiming KDB consist of: specified intangible assets on which capital qualifying asset • Managing, developing, maintaining, allowances may be claimed was extended by protecting, enhancing or exploiting of Finance Act 2014 to include customer lists UE is the uplift expenditure intellectual property, acquired otherwise than “directly or OE is the overall expenditure on the indirectly in connection with the transfer of a • Researching, planning, processing, qualifying asset business as a going concern”. experimenting, testing, devising, QA is the profit of the specified trade relating developing or other similar activity leading Finance Act 2014 also provides that no to the qualifying asset to an invention or creation of intellectual balancing charge will arise where an property, or intangible asset on which allowances have Qualifying assets been claimed is sold on or after 23 October • The sale of goods or the supply of services 2014 and the sale takes place more than five Qualifying assets are defined as intellectual that derive part of their value from activities years after the beginning of the accounting property, other than marketing related described above. intellectual property, which are the result of period in which the asset was acquired. In the Qualifying expenditure case of a transfer to a connected company, the research and development activities. capital allowances available to the acquirer Intellectual property in this context is defined The definition of ‘Qualifying expenditure on are generally limited to the amount as: qualifying assets’ is broadly aligned to the unclaimed by the transferor. definition of ‘expenditure on research and • Computer Programs (within the meaning of development’ for the purposes of the R&D tax Knowledge Development Box the Copyright and Related Rights Act 2000) credit. In this regard, where a company develops, improves or creates a qualifying Finance Act 2015 introduced the Knowledge • Qualifying Patents asset through qualifying R&D activities and Development Box (KDB), a tax relief that • Supplementary Protection Certificates the company makes R&D tax credit claims in results in an effective 6.25% corporation tax • Plant Breeders Rights relation to this, the expenditure underpinning rate to certain profits arising from “qualifying these claims should be broadly aligned to the assets”, for accounting periods which Each qualifying asset is to be treated ‘qualifying expenditure on qualifying assets’ commence on or after 1 January 2016. separately for the purposes of the KDB for the purposes of this relief. Qualifying profits on which the relief can be calculations. However, if a number of claimed are intended to reflect the proportion qualifying assets are so interlinked that it Please note that payments made to a third that the company’s R&D costs bear to its would be impossible to provide a reasonable party to carry on R&D activities on behalf of overall expenditure on the qualifying asset. allocation of income and expenses, then the company are also regarded as qualifying

Tax Facts 2016 6 Business taxation

expenditure for the purposes of calculating There are detailed provisions in relation to Tax depreciation the relief whereas such payments are how the relevant income and expenditure restricted for the purposes of the R&D tax should be calculated for the purposes of the Book (or accounting) depreciation is not credit. Payments made through group various definitions detailed above. generally deductible for tax purposes (except companies to third parties in respect of R&D in the case of IP assets as above). Instead, tax activities are also treated as qualifying Companies must track and trace all depreciation (known as capital allowances) is expenditure provided no mark-up is taken by expenditure and income relating to the permitted on a straight-line basis in respect of the other group company. qualifying asset on which a KDB claim is expenditure incurred on assets which have made and should prepare documentation been put into use by the company. The Up-lift expenditure which demonstrates how such expenditure following rates are applicable: and income are linked to the qualifying asset. Costs outsourced to affiliates or costs incurred Asset type Tax depreciation on the acquisition of the IP are not regarded as rate Planning tip! qualifying expenditure. However, such costs Plant and machinery 12.5% are allowed as “uplift expenditure” up to a Tax relief is available for companies on the Industrial buildings used combined maximum of 30% of the total acquisition of qualifying IP assets, including for manufacturing or 4% qualifying expenditure. acquisitions from related parties. qualifying activities Motor vehicles (subject Overall expenditure to qualifying cost 12.5% The overall expenditure is the aggregate of restrictions below) the acquisition costs and the group Book depreciation IP assets outsourcing costs related to that qualifying or 7% asset plus the qualifying expenditure incurred in relation the qualifying asset. The allowances are calculated on the cost Other points of note after deduction of grants, except for plant and A KDB election must be made in the machinery used in the course of the company’s tax return for the accounting manufacture of processed food for human period in which the qualifying expenditure is consumption. In this case, the allowances are incurred and must be made within 24 months calculated on the gross cost. Allowances on from the end of that accounting period. passenger motor vehicles are restricted to a capital cost of €24,000 and may be restricted Where a company incurs a loss on the further (to 50% or zero) depending on the activities that qualify for the KDB relief, the level of carbon emissions of the vehicle. loss should be available on a value basis against other profits of the company in the There is a scheme of accelerated allowances relevant year. that provides for 100% capital allowances in the year of purchase in respect of expenditure

Tax Facts 2016 7 Business taxation

incurred by companies on certain qualifying of the capital cost of an asset rather than resident of the EU or an EEA treaty territory is equipment of an energy saving nature relying on tax depreciation over eight years. less than the amount that would be computed acquired for trading purposes. This scheme This effectively allows the lessors to write-off by reference to the nominal rate of tax in the currently runs until 31 December 2017. In their capital investment for tax purposes in country from which the dividend was paid. order to qualify under this scheme, the line with the economic recovery on the asset. The credit may instead be based on this equipment must meet certain energy efficient nominal rate of tax in that EU/EEA treaty criteria and must fall within the following Ireland as a holding company territory. It may be the case that the profits out classes of technology: location of which the dividend is paid are not themselves subject to tax but are attributable Irish tax legislation provides for an exemption • information and communications to profits of another company which have from capital gains tax for Irish resident technology been subject to tax (e.g. where a dividend is companies which make disposals from paid to an intermediate holding company • heating and electricity provision qualifying shareholdings (at least 5%) in from a company which was subject to tax on subsidiaries tax resident in an EU or treaty • electric and alternative fuel vehicles the underlying profits and the intermediate country (including Ireland), where either the holding company is not subject to tax on the • process and heating, ventilation, and air subsidiary itself or the group as a whole are dividend under a participation exemption conditioning (HVAC) control systems regarded as trading. regime). In such circumstances, the additional • lighting Under foreign tax credit pooling rules, and credit is instead based on the nominal rate of • motors and drives subject to limitations placed on credits arising tax in the jurisdiction where the profits were from trading dividends, an excess tax credit subject to tax. • building energy management systems arising in respect of a foreign dividend may be Foreign dividends paid out of trading profits • refrigeration and cooling systems offset against the corporation tax arising on are subject to corporation tax in Ireland at the other foreign dividend income. Excess tax • electro-mechanical systems 12.5% rate where the paying company is a credits arising in an accounting period may be 75% subsidiary (direct or indirect) of a • catering and hospitality equipment carried forward indefinitely for offset against company whose shares are traded on an corporation tax on foreign dividends in later A list of the items that qualify under the approved stock exchange, or where the paying periods. Any excess foreign tax credits arising scheme can be found at www.seai.ie. company is tax resident in an EU/ treaty in respect of a foreign branch may be offset country and the trading profits arose in this against Irish tax arising on branch profits in Leasing company or are sourced through a chain of other countries in the year concerned, and EU/treaty resident companies. These Ireland operates an eight-year tax any unused credits may be carried forward provisions are extended to include dividends depreciation life on most assets. A beneficial indefinitely and credited against corporation received from trading companies resident in a tax treatment applies to finance leases and tax on foreign branch profits in later territory that has ratified the Convention on operating leases of certain short life assets accounting periods. (i.e. those with a life of less than eight years). Mutual Administrative Assistance in Tax For such assets, Ireland allows lessors to An additional credit for foreign tax is available Matters. All other foreign dividends are follow the accounting treatment of the for dividends paid from 2013 onwards where subject to corporation tax at the 25% rate. transaction, which provides a faster write-off the existing credit on a dividend from a

Tax Facts 2016 8 Business taxation

In very limited circumstances, foreign Closely held companies certain exclusions, to pay income tax to Irish dividends received by an Irish company Revenue on the ‘grossed up’ amount of the holding not more than 5% of the share capital Broadly speaking, a close company is a loan and voting rights in the foreign company are company which is under the control of five or exempt from corporation tax. This exemption fewer ‘participators’ (which include Start-up companies only applies where the dividend income is shareholders and loan creditors) or under the New or start-up companies, which commence taxed as trading income of the Irish company. control of ‘participators’ who are directors (however many directors there are). There are trading between 2009 and 2018 may be Irish tax legislation has no thin capitalisation a number of exclusions from this general rule. eligible for start-up companies’ relief. This or controlled foreign corporation (CFC) rules. These include exclusions for non-resident relief is available for three years from the companies, specified industrial and provident commencement of the trade. The relief takes A form of pooling of tax deductions (not societies / building societies, companies the form of a reduction in the corporation tax credits) for foreign tax on royalties is available controlled by the State / by another EU liability relating to the new trade (including where such royalties are treated as trading Member State or by the Government of a chargeable gains on assets used in the trade) income for companies. All royalties sourced treaty territory, certain companies with and is capped at the amount of the employer’s from non-treaty countries from which foreign quoted shares and companies which are social insurance contributions made on behalf tax has been deducted are aggregated and the controlled by a non-close company. of the company’s employees in the period. The foreign tax applicable is used to reduce the corporation tax liability relating to the new amount of such royalties subject to Irish tax. A surcharge of 20% is payable on the total trade can reduce to nil where that liability undistributed investment and rental income does not exceed €40,000. Where the of a close company. Closely held “service” company’s corporation tax liability is between companies are also liable to a surcharge of €40,000 and €60,000, marginal relief is Contact us: 15% on one-half of their undistributed trading available. For accounting periods ending on or income. after 1 January 2013, any unused relief arising in the first three years of trading can Other specific provisions applying to closely be carried forward for use in subsequent held companies include: years. • certain payments made on behalf of ‘participators’ in the company or their Corporate – Tax administration associates may be deemed to be Taxable period Ronan MacNioclais distributions of the company Partner The tax accounting period normally coincides t: 353 1 792 6006 • interest paid to certain directors or their with a company’s financial accounting period, e: [email protected] associates (e.g. on foot of a loan advanced) except where the latter period exceeds 12 may be deemed to be a distribution where months. the interest exceeds specified limits • a company making loans to ‘participators’ or Tax return their associates may be required, subject to A company must submit its corporation tax return within nine months of the end of the Tax Facts 2016 9 Business taxation

accounting period to which the return relates Large companies corporation tax liability for its immediately (but no later than 21st day of the month) in preceding period (again adjusted pro-rata The first instalment of preliminary tax is due order to avoid the imposition of (i) a where the lengths of the respective periods six months from the start of the tax surcharge of up to 10% of the tax due (subject differ). The balance of tax is due when the accounting period (but no later than the 21st to a maximum surcharge of €63,485), (ii) a corporation tax return is filed. day of that month). To avoid the imposition of restriction of up to 50% of certain claims for interest charges for late payment of tax, the relief including relief for trading losses arising A special provision exists for start-up payment made must equal at least (i) 45% of in the same period (subject to a maximum companies. In the accounting period in which the final corporation tax liability for the restriction of €158,715). a company comes within the charge to Irish period, or (ii) 50% of the corporation tax corporation tax, if its corporation tax liability Irish Revenue introduced mandatory filing of liability for its immediately preceding period for that period is less than the ‘relevant limit’ financial statements in iXBRL format in 2012 (adjusted pro-rata where the lengths of the set out above, its preliminary corporation tax on a phased basis. The provisions applied respective periods differ). for the period is taken as Nil. initially to companies which are dealt with by The second instalment of preliminary tax is the Revenue Large Cases Division. The second Electronic Filing due 31 days before the end of the tax phase made filing mandatory for all taxpayers accounting period (but no later than the 21st Where returns and payments are made filing corporation tax returns on or after 1 day of that month). This payment must bring electronically via the Irish Revenue’s Online October 2014 in respect of accounting periods the total paid up to 90% of the final system (ROS), the above filing and payment ending on or after 31 December 2013 unless corporation tax liability for the period. deadlines are extended to the 23rd day of the the taxpayer met specific iXBRL exemption relevant month. In general, companies have criteria. It is intended that all remaining The balance of tax is due when the been required to pay and file electronically corporation taxpayers will be included in the corporation tax return for the period is filed since 2011. final phase which will commence at a date to (that is, within nine months of the end of the be announced by Irish Revenue. tax accounting period, but no later than the Statute of limitations 21st day of the month in which that period of Payment of tax nine months ends). A system of self-assessment and Irish Revenue audits is in operation in Ireland. Irish Revenue Corporation tax payment dates are different may undertake an audit of a company’s tax for ‘large’ and ‘small’ companies. Small companies return within a period of four years from the Small companies are required to pay A ‘small’ company is a company whose end of the accounting period in which the preliminary corporation tax in one instalment corporation tax liability in the preceding year return is submitted. only. This is due 31 days before the end of the was less than €200,000 (the ‘relevant limit’). tax accounting period (but no later than the This limit is adjusted pro-rata where the 21st day of the month). preceding corporation tax period was less than one year in length. To avoid the imposition of interest charges for late payment of tax, the payment must equal All other companies are ‘large’ companies. at least (i) 90% of the final corporation tax liability for the period or (ii) 100% of the

Tax Facts 2016 10 Business taxation

Contact us:

John O’Leary Paraic Burke Partner Partner Financial Services & Domestic & International Structuring International Structuring t: 353 1 792 8659 t: 353 1 792 8655 e: [email protected] e: [email protected]

Jean Delaney Partner Inward Investment & International Structuring t: 353 1 792 6280 e: [email protected]

Tax Facts 2016 11 Transfer Pricing

Overview • there is an exemption for small and medium 1. no further enquiries or enterprises (SMEs) Ireland’s transfer pricing legislation 2. issues that need to be further addressed effectively endorses the OECD Transfer Transfer Pricing Compliance within the TPCR process. Pricing Guidelines and the arm’s length Review principle. The transfer pricing rules apply to Irish Revenue reserves the right to escalate a In 2015, a dedicated transfer pricing audit arrangements entered into between case to a formal audit, for example in cases team was formed within the Large Cases associated persons, involving the supply or where a company declines to complete a Division of Irish Revenue and has begun to acquisition of goods, services, money or self-review. Should a case escalate from a initiate specific transfer pricing audits to intangible assets. The rules apply only to TPCR to an audit, the company will be issued monitor compliance with Irish transfer pricing trading transactions that are taxed under with a separate audit notification letter. rules. Case I or II of Schedule D of the Taxes Acts (in Country-by-Country Reporting the main transactions taxable at 12.5%). Irish Revenue also continues to monitor compliance with the transfer pricing rules Finance Act 2015 included legislation The rules confer a power on the Irish Revenue through its Transfer Pricing Compliance introducing country-by-country (CbC) to re-compute the taxable profit or loss of a Review (TPCR) programme. Under this reporting for Irish-parented multinational taxpayer where income has been understated programme, companies selected will be enterprises (Irish MNEs). The legislation or where expenditure has been overstated as a notified to undergo a self-review of their requires Irish MNEs with consolidated result of non-arm’s length transfer pricing compliance with the Irish transfer pricing annualised group revenue of €750 million or practices. rules. more to comply with the new requirements, Ireland’s transfer pricing rules came into with the first CbC report to be prepared for Companies selected will be requested to effect for accounting periods commencing on fiscal years beginning on or after 1 January provide a transfer pricing report, for a specific or after 1 January 2011 in relation to 2016. Irish MNEs captured under the new accounting period, to Irish Revenue within arrangements entered into on or after 1 July legislation must file a CbC report annually to three months. In order to minimise 2010. include specific financial data covering compliance costs, Irish Revenue has explicitly income, taxes, and other key measures of Other highlights of the transfer pricing stated that existing studies elsewhere in the economic activity by territory. legislation are as follows: multinational group which cover the related party dealings of the Irish operations should Irish Revenue have also published regulations • the regime applies to domestic and be sufficient. to provide for a secondary filing mechanism international related party arrangements whereby, in certain circumstances, an Irish The TPCR programme is not a formal audit so • specific guidance issued by the Irish tax resident entity that is part of a foreign this allows for voluntary disclosures to be MNE with consolidated annualised group Revenue states that in order “for a company made at any time during the process. The to be in a position to make a correct and revenue of €750 million or more shall be outcome of a TPCR will be a letter from Irish required to submit an ‘equivalent CbC report’ complete tax return”, appropriate transfer Revenue indicating either: pricing documentation should exist at the to Irish Revenue. time the tax return is filed

Tax Facts 2016 12 Transfer Pricing

For more information on transfer pricing contact:

Gavan Ryle Partner t: 353 1 792 8704 e: [email protected]

Ronan Finn Partner t: 353 1 792 6105 e: [email protected]

Tax Facts 2016 13 Financial services

Banking and treasury • Favourable and improving income tax rules addition, there are a number of tax features for non-Irish domiciled individuals working specific to the Irish insurance sector as The international banking sector has in Ireland follows: developed into a vital component of the Irish economy, with approximately half of the top • Stamp duty exemptions available on the • a gross roll up regime for life funds whereby 50 world banks located in Ireland. In addition, majority of financial instruments investment returns for non-Irish resident a large number of multinationals have • Tax credit for research and development policyholders accrue on a tax-free basis, established corporate treasury operations in activities • exemption from US Federal Excise Tax Ireland to manage inter alia, inter-group (FET) under the US/Ireland double tax lending, cash pooling, cash management, debt A bank levy applies to banks and building treaty in respect of the insurance/ factoring, multicurrency management and societies and is calculated as 35% of the reinsurance of US risks, and hedging activities on behalf of their respective amount of DIRT (Deposit Interest Retention groups. Tax) paid by the bank or building society. The • no Insurance Premium Tax (IPT) on levy is payable on 20 October annually. insurance premiums received in Ireland in Irish resident companies are subject to 12.5% respect of risk located outside of Ireland and Finance Act 2015 allows a deduction for corporation tax on their tax adjusted trading no IPT on reinsurance irrespective of where certain interest/dividend payments made in profits. A higher tax rate of 25% applies to the risk is located. “passive” income. These comparatively low respect of capital instruments issued by banks tax rates have been supported by an envious in order to satisfy their Tier 1 capital A number of leading insurers and reinsurers tax framework, as detailed below, in requirements. In prior years, no deduction have established significant hub operations in contributing to Ireland’s success in attracting was available for interest payable in relation Ireland. The “hub and spoke” model, whereby investment from international banks, various to Tier 1 capital. pan-European insurance and reinsurance financial institutions and treasury companies: operations centralise their organisational Insurance structure in a single head office located within • Absence of CFC and thin capitalisation rules the EU, creates significant capital and Ireland is a key player in the global insurance operational efficiencies. Ireland is a leading • Tax deductions are generally available for and reinsurance industry. The key factors location for such hubs and two of the main funding costs behind this success include the fiscal factors behind this are: environment, the European standard • Extensive domestic exemptions from regulatory regime (in particular the withholding tax on interest, dividend and • Ireland’s 12.5% corporation tax rate on the passporting regime), a relatively low cost base royalty payments Irish head office profits and and a strong business infrastructure relating • Generous double taxation relief provisions to international insurance and reinsurance. • Ireland’s generous double taxation relief for foreign taxes and withholding taxes regime that provides credit for foreign tax suffered Insurance and reinsurance companies that are paid on foreign branch profits against the tax resident in Ireland are subject to Irish Irish tax on those profits. This achieves an • Access to Ireland’s extensive double tax corporation tax at the rate of 12.5% on their effective exemption for foreign branch treaty network with 72 treaties signed of tax adjusted trading profits and enjoy the profits given that the Irish corporation tax which 70 are in effect same attractive tax framework outlined above rate is generally lower than corporation tax • No capital duty or net assets wealth tax for the banking and treasury sector. In rates in other countries.

Tax Facts 2016 14 Financial services

Ireland has also emerged as a leading network, with the majority of these treaties Aviation Sector Capital European domicile for reinsurers seeking to providing for 0% withholding tax on inbound allowances for aviation services redomicile from centres such as Bermuda. lease rentals. In addition, there are no withholding taxes on outbound lease rentals. Finance Act 2015 introduces enhanced capital Furthermore, Ireland continues to be one of Since 2011, Ireland’s Section 110 companies allowances for capital expenditure incurred the largest exporters of life insurance in the (see ‘Section 110 companies’ below) can hold on buildings employed in a trade of EU. leased aircraft or engines as qualifying assets, maintenance, repair or overhaul of providing potentially tax neutral aircraft commercial aircraft or a commercial aircraft Exit tax leasing opportunities. There is 0% stamp duty dismantling trade. The scheme provides for tax depreciation over a seven year period A withholding tax, known as exit tax, is on instruments transferring aircraft or any instead of the normal 25 year period but is required to be operated in respect of Irish life interest, share or property of or in an aircraft limited to the first €5 million of expenditure policies on payments to taxable Irish and there is 0% VAT on international aircraft on relevant buildings (where incurred by a individual policyholders on certain chargeable leasing. In addition, there is a stamp duty company) and €1.25 million (where incurred events at the rate of 41% and at 25% on exemption on the issue, transfer or by an individual). Expenditure in excess of payments to corporate policyholders. The redemption of an Enhanced Equipment Trust these limits may still qualify for the normal holding of policies at the end of an eight year Certificate (“EETC”) as an aviation financing industrial buildings allowances regime. The period (and each subsequent eight year tool in Ireland. scheme, providing for accelerated allowances anniversary) will constitute a deemed Unilateral credit relief was introduced in 2012 over seven years, will operate in respect of disposal on which exit tax may arise in respect where withholding taxes are suffered on lease relevant expenditure incurred up to 13 of taxable Irish policyholders. Non-Irish rental payments from countries with which October 2020. The scheme further enhances resident and exempt Irish resident Ireland does not have a tax treaty. This relief Ireland’s offering in the aviation sector. policyholders are not subject to exit tax on was further amended in 2013 to provide for Irish life policies provided relevant the carry forward of excess foreign tax credits Section 110 companies declarations are in place. arising on lease rental income received by an Ireland has a favourable securitisation tax Aircraft leasing Irish trading entity that would otherwise be regime for entities known as Section 110 lost. companies. A Section 110 company is an Irish Ireland was the birthplace of the aircraft resident special purpose company that holds leasing industry over 35 years ago. Since then, The introduction and amendments over and/or manages ‘qualifying assets’, which Ireland has pioneered the development of an recent years to the Special Assignment Relief includes ‘financial assets’. The term ‘financial envious and supportive tax and legal Programme incentivises executives to relocate asset’ is widely defined and includes both environment to incentivise the continued to Ireland and the Foreign Earnings mainstream financial assets such as shares, growth of the industry. Deduction regime, which provides tax relief to Irish employees who spend time working loans, leases, lease portfolios, bonds, debt, A tax depreciation write-off period of eight overseas, helps to promote the growth of the derivatives, all types of receivables as well as years is available for aircraft and engines and aircraft leasing sector in Ireland. assets such as carbon offsets and plant and means significant acceleration for such machinery. long-life assets. Ireland has an extensive (and ever increasing) high quality double tax treaty

Tax Facts 2016 15 Financial services

It is possible to establish a Section 110 The primary objectives of the REIT regime are would represent the final Irish tax liability Company as an onshore investment platform to facilitate the attraction of foreign of the foreign shareholder. Relief is not to access Ireland’s double tax treaty network. investment capital to the Irish property available at source and the tax would have The Section 110 regime has been in existence market, to release bank financing from the to be reclaimed from Irish Revenue. since the early 1990s and with appropriate property market for use by other sectors of the • Certain exempt investors such as pension planning effectively allows for corporation tax economy and to provide investors with an funds and Irish regulated funds will not neutral treatment, provided that certain alternative lower-cost, lower-risk method for suffer any withholding tax. conditions are met. The regime is used by property investment. international banks, asset managers, and For non-resident shareholders the REIT investment funds to facilitate securitisations, The tax regime applicable to the Irish REIT is regime carries one particularly attractive investment platforms, collateralised debt relatively straightforward. While the normal feature. Capital gains generated by the REIT obligations (CDOs), collateralised loan stamp duty rate (2%) applies to Irish property do not have to be distributed to shareholders obligations (CLOs) and capital markets bond transfers into the REIT, the REIT itself is and, if retained and reinvested by the REIT, issuances and has recently been used for exempt from tax on rental income and on any will be reflected in its share price. The leasing transactions including big ticket assets capital gains arising on property disposals. non-resident investor can then dispose of the such as aircraft and ships. However distributions out of the REIT to REIT shares free of Irish CGT. This would not shareholders are liable to dividend be available if the non-resident investor held The recent expansion of the range of withholding tax at the rate of 20% subject to a the property directly. The disposal of the REIT investments in which a Section 110 company number of exceptions and comments: shares would however be liable to stamp duty can invest is significant and has enabled a (at the rate of 1%) in the hands of the • Irish resident shareholders are liable to tax Section 110 company to invest in non- purchaser. financial assets such as commodities and on REIT distributions at their normal tax leased plant and machinery. In particular, the rates. Thus Irish resident individuals will Three REITs currently exist and speculation is extension of the Section 110 regime to include generally be taxed at marginal rates with that at least two more may be listed on the plant and machinery has copper fastened credit being allowed for the 20% Irish stock exchange in 2016. Although its tax Ireland as the leading global centre of withholding tax rate, while Irish corporates attractiveness does not rival the Qualifying excellence for aircraft financing transactions. will generally be taxed at the passive Investor Alternative Investment Fund income rate of 25%. Capital gains (e.g. on (“QIAIF”) structure (which has been used for Real Estate Investment Trusts the disposal of REIT shares) will be taxable large private property deals and is completely (REIT) at the normal CGT rate (currently 33%). free of Irish tax for non-residents), it is a very different product. Further tax changes will be The REIT is the internationally recognised • Shareholders who are tax resident in required if the Irish REIT is to become an collective investment structure for holding countries that have a double taxation attractive structure for holding international commercial and/or residential property. agreement with Ireland can benefit from a property but we understand that this feature Although the regimes differ somewhat from lower dividend withholding tax rate if that is to be actively worked on and modifications country to country, the REIT typically takes is provided for under the agreement. may be expected in future Finance Acts. the form of a listed company (or group) with a Although rates vary depending on the diverse shareholding base. double taxation agreement, typically the treaty rate would be less than 20% and this

Tax Facts 2016 16 Financial services

Asset management Irish fund management companies and investments or has non-EU investors. To the service providers (e.g. fund administrators) extent that Irish funds are in receipt of taxable Ireland has a favourable tax regime which has are subject to Irish corporation tax at 12.5% reverse charge services from abroad, they contributed to establishing it as a tried and on their trading profits. must register and self-account for Irish VAT. trusted domicile of choice for investment funds. In 2015, fund assets administered in Irish domiciled investment funds are exempt The Irish funds industry continues to work Ireland amounted to €3.62 trillion, with from Irish tax on their income and gains. with the Irish government and Irish Central assets in Irish funds accounting for Investment funds are required to operate a Bank to explore and progress the development approximately €1.8 trillion. Ireland is the withholding tax, known as exit tax, on of new and existing products that will largest centre for administration of hedge payments to taxable Irish individual investors enhance Ireland’s competitiveness on the fund assets (over 40% of global hedge fund at the rate of 41% on distributions and gains international stage. assets are administered in Ireland). (on realisation of fund investment) and at the rate of 25% on payments (chargeable events) Global Information Reporting Ireland was among the first countries to adapt to Irish corporate investors. The holding of (FATCA & CRS) its legislation for the tax-efficient shares at the end of an eight year period (and The OECD released the Common Reporting implementation of the UCITS IV regime. each subsequent eight year anniversary) will Standard (“CRS”) in February 2014 which Ireland’s tax rules also permit constitute a deemed disposal on which exit seeks to establish a new Global Standard for redomiciliations, mergers and reconstructions tax may arise in respect of taxable Irish the Automatic Exchange of Information of investment funds without giving rise to investors. Non-Irish resident and exempt Irish between Governments. This entailed the adverse Irish tax consequences for funds of resident investors are not subject to exit tax on annual sharing of certain taxpayer their investors. Irish investment funds provided relevant information from the country of the source of declarations are in place. Ireland was also one of the first jurisdictions the payment to the taxpayer’s country of to set out a detailed approach to the Dividends and interest received by Irish funds residence. implementation of Alternative Investment from Irish equity and bond investments Currently, close to 100 jurisdictions have Fund Managers Directive (AIFMD). It, among should not be subject to Irish withholding committed to implementing CRS and other things, provides for the appointment of taxes. In addition, no Irish stamp duty is exchanging information. The Irish alternative investment fund managers payable on the issue, transfer, repurchase or regulations implementing CRS were signed on (AIFMs) located in one jurisdiction to manage redemption or shares in an Irish investment 22 December 2015 by the Minister of Finance alternative investment funds (AIFs) outside of fund, (where a subscription/redemption is and CRS came into effect in Ireland on 1 their home jurisdiction. Similar to the satisfied by the in specie transfer of Irish January 2016. The first filings will be due by legislative amendments introduced previously securities or property, stamp duty may apply 30 June 2017 in respect of the 2016 reporting with regards to the UCITS Management on such securities or property). Company Passport, Finance Act 2015 period. confirms that the appointment of an Irish Most services received by Irish funds should The OECD leveraged the US’s Foreign Account AIFM to manage non-Irish AIFs will not bring be exempt from Irish VAT, including Tax Compliance Act (“FATCA”) to design CRS such non-Irish AIFs within the charge to Irish investment management services. Where VAT and as such CRS is broadly similar to the tax. is suffered, recovery is possible where the FATCA requirements, albeit with numerous fund holds a percentage of non-EU alterations. It will result in a significantly

Tax Facts 2016 17 Financial services

higher number of reportable persons due to In relation to FATCA, the first filing deadline This demonstrates the Irish government and the increased instances of potentially in-scope occurred in 31 July 2015 for the 2014 Irish tax authorities desire to enhance the accounts and the inclusion of multiple reporting period and c. 3,600 returns were attractiveness of Ireland as a location for jurisdictions to which accounts (of tax made in Ireland. There have been indications Islamic finance transactions by extending to residents of such jurisdictions) must be from the Irish Revenue that stricter validation this form of financing the relieving provisions reported. In addition, where entities were not requirements will be operated for the 2015 that currently apply to conventional financing. previously classified as in-scope Financial period FATCA returns. The filing deadline for Since the introduction of the facilitating Institutions for FATCA, significant investment the 2015 reporting period is 30 June 2016. legislation in Ireland in 2011, subsequent may be required to assist with the Finance Acts have seen the inclusion of more implementation of compliance programs Islamic finance minor or technical changes, all intended to under CRS. facilitate the development of the industry in Through a combination of pre-existing tax Ireland. The financial institutions covered by the legislation and specific amendments to tax standard include custodial institutions, legislation introduced in 2011, Irish tax law depository institutions, investment entities facilitates most Islamic finance transactions, and specified insurance companies. The including ijara (leasing), takaful (insurance), financial information to be reported with re-takaful (reinsurance), murabaha and respect to reportable accounts includes diminishing musharaka (credit interest, dividends, account balance or value, arrangements), mudaraba and wakala income from certain insurance products, sales (deposit arrangements) and sukuk. While proceeds from financial assets and other there is no specific reference in the legislation income generated with respect to assets held to Islamic finance, rather the reference is to in the account or payments made with respect Specified Financial Transactions, overall, the to the account. Reportable accounts include premise of the legislation in Ireland is to accounts held by individuals and entities ensure that Islamic finance transactions are (which includes trusts and foundations), and treated in the same favourable manner as the standard includes a requirement to look conventional financing transactions. The through passive entities to report on the legislation also facilitates the favourable relevant controlling persons. In addition to taxation (and tax impact) of UCITS reporting the Financial Institution must carry management companies. The UCITS structure out appropriate due diligence on both is one of the most commonly used structures pre-existing and new financial accounts, for many different types of Islamic funds, such including obtaining self-certifications from as retail Islamic equity funds, Shariah- new account holders upon opening the compliant money market funds, Shariah- account. compliant exchange traded funds (ETFs), etc.

Tax Facts 2016 18 Financial services

Contact us:

Enda Faughnan John O’Leary Marie Coady Partner Partner Partner Financial Services Financial Services Financial Services t: 353 1 792 6359 t: 353 1 792 8659 t: 353 1 792 6810 e: [email protected] e: [email protected] e: [email protected]

Jim McDonnell Yvonne Thompson Brian Leonard Partner Partner Partner Financial Services Financial Services Financial Services t: 353 1 792 6836 t: 353 1 792 7147 t: 353 1 7926179 e: [email protected] e: [email protected] e: [email protected]

Tax Facts 2016 19 Corporate - withholding taxes (WHT)

Dividend WHT applies at 20% to dividends Finance (or 75% subsidiaries of such Irish tax group are generally not subject to and other distributions made by Irish resident companies). WHT. companies. However, an exemption may be • Non-resident companies which are wholly available where the recipient of the dividend/ Royalties WHT owned by two or more companies the distribution is either an Irish resident principal class of shares of each of which is Royalties, other than patent royalties, are company which holds a 51% or greater traded on a recognised stock exchange in a generally not subject to WHT under domestic shareholding in the company or a non- treaty country or another EU member state law. Patent royalty payments and certain resident company eligible for the Parent- or on any other stock exchange approved by other annual payments are subject to WHT at Subsidiary Directive (which in Ireland the Minister for Finance. 20%. Patent royalty payments made by requires a 5% or greater shareholding). companies to companies resident in another • Individuals who are resident in a treaty EU member state or in a treaty country are Exemptions from dividend WHT are also country or another EU member state. available where the recipient of the generally not subject to WHT. The EU Interest distribution falls into one of the categories • Certain pension funds, retirement funds, and Royalties Directive may also provide an listed below and makes an appropriate sports bodies, collective investment funds exemption from WHT for payments between declaration to the company paying the and employee share ownership trusts. associated companies. distribution in advance of the distribution. A company which makes a dividend/ WHT on capital gains This declaration is self-assessed and valid for distribution is required, within 14 days up to six years: following the end of the month in which the Where any of the following assets is disposed distribution is made, to make a return to Irish of, the person by whom or through whom the • Irish resident companies (as above, a Revenue containing details of the recipient of consideration is paid (i.e. the purchaser) must declaration is not required for Irish resident the distribution, the amount of the deduct capital gains WHT at a rate of 15% companies which hold a 51% or greater distribution and the amount of any WHT from the payment: shareholding in the company). required to be withheld. The return must be • Non-resident companies which are resident accompanied by payment of the tax withheld. 1. land or minerals in Ireland or exploration in a treaty country or in another EU member rights in the Irish continental shelf, state, provided they are not controlled by Interest WHT 2. unquoted (unlisted) shares deriving their Irish residents. Certain annual interest payments are subject value or the greater part of their value • Non-resident companies which are to WHT at 20%. Interest payments made by (more than 50%) from assets described in ultimately controlled by residents of a treaty companies to companies resident in another (1) above, country or another EU member state. EU member state or in a treaty country are generally not subject to WHT. The EU Interest 3. unquoted (unlisted) shares issued in • Non-resident companies whose principal and Royalties Directive may also provide an exchange for shares deriving their value or class of shares is traded on a recognised exemption from WHT for payments between the greater part of their value from assets as stock exchange in a treaty country or associated companies. Furthermore, interest described in (1) above, and another EU member state or on any other payments from one Irish resident company to stock exchange approved by the Minster for 4. goodwill of a trade carried on in Ireland. another Irish resident company in the same

Tax Facts 2016 20 Corporate - withholding taxes (WHT)

The requirement to withhold tax does not include government departments, local apply where the consideration does not authorities and health boards. Credit is exceed €500,000 (or €1 million in the case of granted for any PSWT withheld against the houses disposed of after 1 January 2016) or corporation tax (or income tax for an where the person disposing of the asset individual) liability of the accounting period produces a certificate from the Irish Revenue in which tax is withheld. authorising payment in full. A clearance certificate may be obtained by making an WHT rate reductions and application to Irish Revenue supported by a exemptions copy of the agreement or contract for sale. The Exemptions and rate reductions apply under certificate may be obtained on the grounds domestic law and under tax treaties. Where that (i) the vendor is Irish resident, (ii) that no an exemption from WHT is not available, a capital gains tax is due in respect of the reduced rate of WHT may apply under an disposal or (iii) that the capital gains tax has applicable tax treaty (please refer to been paid. WHT is creditable against the Appendix 1). capital gains tax liability of the vendor, and any excess is refundable.

To avoid the requirement to withhold, clearance must be obtained before the consideration is paid. The withholding procedure is also required to be applied, and therefore clearance should also be obtained, where the asset is held as trading stock or where the transaction is intra-group and a capital gains tax liability does not arise. Failure to obtain the certificate will lead to the purchaser being assessed to capital gains tax for an amount of 15% of the consideration even if no capital gains tax liability would arise on the disposal of the asset. Professional services withholding tax (PSWT) Income tax at the standard rate (currently 20%) is deducted from payments for professional services made to individuals and companies by “accountable persons”, which

Tax Facts 2016 21 Tax treaties

Companies that are resident in Ireland may avail of the benefits of Ireland’s tax treaty network. These tax treaties secure a reduction or, in some cases, a total elimination of withholding tax on dividends, royalties and interest. See Appendix 1 and Appendix 2 for details of withholding tax on payments both to and from Ireland. Ireland has concluded, or is in the process of concluding, tax treaties with the following countries:

Treaties in force as at 1/1/2015 Albania Czech Republic Italy Netherlands Slovenia Armenia Denmark Japan New Zealand South Africa Australia Egypt Korea (Republic of) Norway Spain Austria Estonia Kuwait Latvia Pakistan Sweden Bahrain Finland Lithuania Panama Switzerland Thailand Belarus France Luxembourg Poland Turkey Belgium Georgia Macedonia Portugal Bosnia Herzegovina Germany Malaysia Qatar Ukraine Bulgaria Greece Malta Romania United Arab Emirates Canada Hong Kong Mexico Russia United Kingdom Chile Hungary Moldova Saudi Arabia United States China Iceland Montenegro Serbia Uzbekistan Croatia India Morocco Singapore Vietnam Cyprus Israel Slovak Republic Zambia

Treaties signed but not yet in force Contact us: Botswana Ethiopia

Denis Harrington, Partner International Structuring t: 353 1 792 8629 e: [email protected]

Tax Facts 2016 22 Value added tax (VAT)

General registration thresholds unless the trader has a Planning tip! fixed place of business in Ireland. Foreign If you primarily supply goods or services to VAT is a transaction based tax and is traders making distance sales (being the persons who are not registered for VAT or if chargeable on the supply of goods or services supply goods from abroad to unregistered your turnover is less than €2 million (effective in Ireland for consideration by an accountable persons) to Ireland are obliged to register for from 1 May 2014) you may be eligible to person other than in the course or furtherance Irish VAT if the value of these sales exceeds account for VAT on a cash receipts basis of an exempted activity. VAT is also €35,000 in a calendar year. Alternatively, rather than on the basis of invoiced sales. chargeable on goods imported from outside they can elect to register should they so wish. the EU, on intra-Community acquisitions of goods and on the purchase of specified Taxable persons (persons engaging in services from suppliers outside of Ireland. business for VAT purposes) in receipt of Please note that while VAT is governed by EU certain services from abroad which are legislation, there are key differences in the deemed to be supplied in Ireland (known as VAT rules applied between the 28 Member reverse charge services) must register for Irish States of the EU as each Member State is VAT and account for Irish VAT on the value of required to impose the EU VAT legislation by those services (where appropriate). They are way of its own domestic legislation. also obliged to register for VAT if they make intra-Community acquisitions of goods which Certain persons carrying on business in exceed €41,000 in a 12 month period. Ireland whose annual turnover does not exceed the following thresholds are not Accounting for VAT required to register for and charge Irish VAT: €75,000 for goods and €37,500 for services. Persons obliged to register for VAT must However, they can elect to register should submit periodic VAT returns, generally they so wish. bi-monthly; however in certain cases (typically low turnover thresholds), monthly, The State, or any public body, is also regarded four monthly, bi-annual or annual returns as an accountable person for VAT purposes in may be submitted. Some accountable persons respect of certain activities carried out on a may elect to account for their VAT liability on more than negligible scale, or in the basis of cash received in a taxable period circumstances where by not treating the State rather than on the basis of invoiced sales (see or public body as an accountable person a planning tip below for more information) significant distortion of competition would which should result in cash-flow advantages. arise.

Foreign traders supplying certain taxable services in Ireland, or selling goods from stocks held or acquired in Ireland, are generally obliged to register for Irish VAT. Foreign traders do not benefit from the

Tax Facts 2016 23 Value added tax (VAT)

Rates Exempt activities • old property which has been significantly re-developed i.e. made ‘new’ again The rates of VAT and some of the supplies to The supply of certain goods and services is which they apply are set out below: exempt from VAT including most banking and Exempt supplies of property may result in a insurance services, education and training, capital goods scheme (CGS) adjustment. The Rates medical services and passenger transport. If a CGS was introduced as part of the ‘new’ supplier is engaged in exempt supplies, regime on 1 July 2008. The CGS provides for 23% The standard rate of VAT applies typically no input VAT deductibility on related the adjustment of VAT deductibility in respect to supplies not subject to the rates of acquisition or development costs over the below costs is possible i.e. VAT is a real cost. property’s ‘VAT life’ i.e. it monitors the use of 13.5% Land and buildings (if taxable), Property the property for the purposes of input VAT building services, heating fuel, deductibility. Typically the VAT life will be 20 VAT on property rules were substantially electricity, and waste disposal years. However a 10-year VAT life applies in changed on 1 July 2008. Transitional rules services the case of refurbishment (development work continue to apply to the supply of interests in 9%* Certain printed matter e.g. on a previously completed building). immovable goods that were acquired or newspapers/periodicals, hotel/ holiday accommodation, developed prior to 1 July 2008 and which are restaurant/ catering services, supplied on or after that date. Planning tip! hairdressing services, cinemas, museums, art gallery exhibitions, Under the ‘new’ post 1 July 2008 VAT on Irish VAT on property rules are complex and certain musical performances, property regime, typical occupational lease specific advice should be sought in respect fairgrounds/amusement parks, interests in property are exempt from VAT of all property related supplies. There can be facilities for taking part in sporting (with a landlord’s “option to tax” the rent in pitfalls and planning opportunities. activities. certain circumstances i.e. charge VAT at the 4.8% Supply of livestock (note 23% standard rate). The supply of freehold - only live horses in certain and freehold equivalent interests in “new” Section 56 Authorisation circumstances). property is subject to VAT at 13.5%. The sale (formerly Section 13A) of “old” property is exempt from VAT unless 0% Exports, books, oral medicine, Accountable persons may be authorised (by the vendor and purchaser exercise a joint children’s clothing, certain basic Irish Revenue) to import, to make intra- food products and footwear option for taxation. Community acquisitions of goods and to acquire most domestic goods and services at * The “Jobs Initiative” (10 May 2011) announced the Examples of “new” property include: introduction of this temporary VAT rate of 9% for certain the zero-rate of Irish VAT if at least 75% of tourism related services. The reduced rate was effective • the first supply of a completed property their annual turnover comprises of exports or from 1 July 2011and due to be in place up to 31 December 2013. However subsequent Finance Acts have confirmed within 5 years of its completion zero-rated intra-Community supplies of that this reduced rate will continue to apply until further goods. Suppliers to such qualifying persons notice. • the second and subsequent supply of a should ensure they obtain a valid VAT56B completed property within 5 years of its prior to applying the zero rate of VAT. Such completion unless it has been occupied for suppliers also have additional invoicing at least 2 years obligations.

Tax Facts 2016 24 Value added tax (VAT)

Withdrawal of VAT credit for bills not paid within six months Contact us: As part of the Government’s initiatives to tackle the shadow economy and protect compliant businesses, measures were introduced in 2013 which provide that where payment for a supply of goods or services has not been made within six months of the period in which the VAT was deducted, i.e. the initial period, the purchaser will be obliged to adjust John Fay Tom Corbett the amount of original deductible VAT Partner Partner accordingly. t: 353 1 792 8701 t: 353 1 792 5462 e: [email protected] e: [email protected] The measures took effect for initial periods beginning on or after 1 January 2014. For example, VAT deducted on invoices received in Jan/Feb 2014 that remain unpaid in September should be adjusted in the July/ August VAT return. If payment is subsequently made, in full or in part, the deductible VAT can be increased accordingly. It is important Sean Brodie Caroline McDonnell to note that where, on or before the due date Partner Partner for the return, the Revenue Commissioners t: 353 1 792 8619 t: 353 1 792 6526 are satisfied that there are reasonable grounds e: [email protected] e: [email protected] for not having paid the full amount, such a clawback of VAT will not be required.

Planning tip! Remember to claim VAT bad debt relief at the earliest opportunity **

** VAT previously paid over on invoices which subsequently become reclassified as ‘bad debts’ can be reclaimed provided certain conditions are met.

Tax Facts 2016 25 Stamp duty

Stamp duty is a tax on certain documents / Stamp duty is payable based on the higher of Transfer/purchase of other instruments. It is payable on transfers of land (a) the consideration paid for the transfer and property and on other assets the title to which cannot (b) the market value of the assets transferring. be passed by delivery. It is chargeable on Written transfers of other types of property instruments of transfer executed in Ireland Rates such as land, buildings, goodwill, book debts, cash on deposit and benefits of contracts and on instruments, wherever executed, Rate which relate to Irish property or relate to attract stamp duty at a rate of 2%. Stocks and matters done or to be done in Ireland. 1% Transfer of certain shares are liable to stamp duty of 1%. Gifts are stocks and shares (including chargeable on their market value at the same A form of stamp duty, known as a “levy”, also share options)† rates as for other conveyances. arises on certain policies of insurance and on Nil Issue of shares certain financial cards and instruments. 1% - 2% Transfer of property other than Planning tip! Stamp duty on the transfer of assets between stocks and shares Always seek advice before executing a associated companies may be fully relieved 1% - 2% Premiums on leases Business Purchase Agreement. Careful from stamp duty provided the following key of houses, land and other real drafting can help to minimise the stamp duty conditions are met: property liability. 1% - 12% • The companies have a 90% relationship (that is, one company is, directly or 1% - 12% Average annual rent reserved indirectly, the beneficial owner of at least by lease (rate depends on the length of the lease) 90% of the ordinary share capital of the other and is entitled to at least 90% of the † transfers of shares not exceeding €1,000 in value are profits available for distribution and at least exempt. 90% of the assets in the case of a winding- Transfer/purchase of up of the other company, or a third company residential property has these rights, directly or indirectly, in respect of both companies). Value of property Rate • This relationship is maintained for a period Up to €1,000,000 1% of at least two years after the transfer of the assets to avoid the relief being clawed back. Any excess over €1,000,000 2% There is an exemption from stamp duty for transfers of intellectual property (IP). The categories of IP qualifying for this exemption are identical to those for which IP capital allowances are available (see Intellectual Property on page 5).

Tax Facts 2016 26 Stamp duty

Exemptions and reliefs

Transaction Stamp Duty Analysis Transfers between associated companies where the necessary Full relief available 90% beneficial ownership relationship exists and where certain other conditions are satisfied Transfers on certain reorganisations, takeovers and mergers Full relief available Most transfers of surplus assets by liquidator to shareholder Nil Transfers of intellectual property, such as copyright, trademarks, Exempt brands and patents Most transfers of foreign shares and foreign land Exempt

A wide range of financial services instruments Exempt Transfers of Irish government stocks Exempt Transfers under wills Exempt Transfers between spouses or civil partners Exempt (including certain transfers on divorce/dissolution) Transfers of carbon credits Exempt Contact us: Planning tip! Remember that transfers of assets between spouses or civil partners are exempt from stamp duty. If you are married or in a civil partnership you should consider whether you hold your assets in the most tax efficient manner. Darragh Duane Director t: 353 1 792 6313 e: [email protected]

Tax Facts 2016 27 Relevant contracts tax (RCT)

Relevant Contracts Tax (RCT) is a carried out in the territory of Ireland, its Operation of RCT withholding tax on payments by Principal territorial waters and designated areas of the Contractors (as defined) to subcontractors Continental Shelf. The designated areas of the RCT operates through an electronic system under a “relevant contract” in respect of Continental Shelf are the extension of (eRCT). The Irish Revenue Online system works defined as “relevant operations”. Ireland’s territorial waters where the natural (ROS) has three RCT rates: 0%, 20% and land extends under the sea to the outer edge 35%. The rate that is applied to a While the common perception is that it is of of the continental margin. subcontractor depends on the subcontractor’s relevance only to the construction, meat compliance record. Criteria for the rates are processing or forestry industries, a broad The definition of ‘relevant operations’ summarised as follows: range of businesses have found that they are includes, in addition to installation, the repair required to withhold RCT from payments to and alteration of systems such as heating, • 0% rate - subcontractors fully tax compliant contractors. Examples of non-construction lighting, telecommunications, power supply, (among other conditions) type companies where RCT can apply are water supply, air conditioning, ventilation, • 20% rate - subcontractors registered for tax, hospitals, banks, telecommunication security, drainage and sanitation systems. are tax compliant and have received zero companies, oil and gas undertakings, rate authorization from Revenue supermarkets, utility companies and local In recent years the RCT base has been • 35% rate - subcontractors not registered for authorities. A person connected with a broadened considerably requiring many tax or with poor tax compliance company engaged in construction, land entities, in particular those in the development, meat processing or forestry telecommunications industry, to evaluate the The scheme involves the mandatory use of activities may also be subject to RCT. scope of RCT and the extent of its application electronic means for sending information, to their businesses. filing returns and making payments through The broad category of Principals liable to Revenue On-line system (ROS). Principal deduct RCT from payments means that many contractors must notify all contracts online individuals and companies need to evaluate, and notify Irish Revenue in advance of in advance of making payments to making payments to subcontractors. Revenue contractors, the impact of RCT in order to will then confirm the RCT rate to apply to a avoid a costly tax settlement. subcontractor payment and authorise the Principal to make the payment. Wide scope of RCT As above, telecommunications companies and There are four main stages to the eRCT others in that sector, including companies system: involved in the alteration and repair of 1. Contract Notification Stage: Principals telecommunications systems, are regarded as must notify Revenue upon entering into a Principal Contractors for RCT purposes and relevant contract, providing Revenue with are required to operate RCT procedures in online details of the contract and respect of payments to subcontractors for subcontractor. relevant operations. RCT applies to works

Tax Facts 2016 28 Relevant contracts tax (RCT)

2. Payment Notification Stage: Principals must notify Revenue in advance of making Contact us: a payment to a subcontractor of their intention to make the payment and the gross amount of that payment.

3. Deduction Notification Stage: Revenue will respond with the rate of RCT which should be withheld from that payment. Principals should then provide each subcontractor with a copy of the Deduction Emer O’Sullivan Authorisation issued by Revenue. Director t: 353 1 792 6695 4. Deduction Summary Stage: Revenue will e: [email protected] issue a Deduction Summary online at the end of the return period, listing all payments which have been notified to them. Principals are responsible for reviewing the Deduction Summary to ensure it is correct, and arranging payment of the RCT due on or before the due date.

RCT withheld will be treated as a payment on Jim Kinahan account and available for offset against other Senior Manager tax liabilities including PAYE or VAT or for t: 353 1 792 8641 repayment at year-end. e: [email protected]

There are significant penalties for non- compliance with the online operation of RCT.

Ken O’Brien Director t: 353 1 792 6818 e: [email protected]

Tax Facts 2016 29 Interest

Interest paid/payable • at least one director who is also a director of Individual borrowings the investee company and, where moneys Relief was previously available to an Relief is available for interest payable in on-lent are used by a connected company, of individual for interest paid on moneys respect of money borrowed: the connected company. borrowed to acquire an interest in or to lend • for the purpose of a trade or profession Certain additional conditions also apply. For to a trading company or holding company carried on by an individual or company (but instance, where the money is lent to, or is where certain conditions were met. may be restricted in certain tax avoidance subscribed for newly issued share capital of a situations) company, it must be used for the specific Interest relief was abolished in respect of trading, rental or holding company activities loans, including replacement loans, made on • for the purchase, improvement or repair of a or after 7 December 2010 with a phasing out rented property except that, in the case of a of that company or of a connected company. There is a restriction on the amount of interest period to 2013 for loans made before that residential premises, relief is subject to date. conditions which includes that the relief available to an investing company deduction may not exceed 75% of the providing funds to a company where the funds are used to acquire specified intangible Loans to acquire Interest in a interest otherwise allowable. Finance Act Partnership 2015 introduced measures whereby a 100% assets upon which the company is entitled to interest deduction can be claimed for claim capital allowances. Tax relief on interest payable on a loan to purchase a share in or to contribute to certain certain qualifying lettings. Anti-avoidance provisions deny or restrict partnerships has been abolished in respect of relief for interest on related party borrowings Relief is also available for interest on money loans made after 15 October 2013, with a for the acquisition of related entities, or the borrowed to acquire an interest in or to lend phasing out period to 2017 for loans made acquisition of assets or trades from a related to a company, as follows: before that date. However, the cessation party. These measures are subject to a number provisions do not apply to farm partnerships. Company borrowings of conditions.

Relief is available to a company for interest “Recovery of capital” and other anti- paid on moneys borrowed to acquire an avoidance measures also restrict relief for interest in, or to lend to, a company which is a interest on both related and third party trading company, a rental company or a borrowings. holding company of trading or rental companies. To qualify for relief, the investing company must have: Planning tip! Review your company structure annually to • a material interest (more than 5% of the ensure that the conditions for interest relief equity) in the company in which it is remain satisfied. investing and, where moneys on-lent are used by a company connected with that company, in the connected company, and

Tax Facts 2016 30 Interest

Deposit interest retention tax DIRT & First Time Buyers (DIRT) First time buyers are entitled to a refund of From 1 January 2014, the rate of DIRT on DIRT in respect of interest earned on savings deposit interest is 41%.The rate of DIRT has to be used either to buy or build a dwelling. been standardised so that the rate of 41% The refund applies to DIRT deducted from applies to both annual or more frequent interest paid on savings up to a maximum of payments (previously subject to a 33% DIRT 20% of the purchase price or the completion rate) and also less frequent payments value. The relief applies in respect of (previously subject to a 36% DIRT rate). purchases or builds completed and suitable for occupation between 14 October 2014 and 31 Exemptions and repayments December 2017. The following can apply to have DIRT repaid or to have deposit interest paid to them Planning tip! without the deduction of DIRT: Unlike other investment income, EU deposit • individuals or their spouses or civil partner interest is not liable to the Universal Social aged 65 or over who are not liable to income Charge. tax Contact us: • incapacitated individuals • non-residents • charities • companies that are liable to corporation tax

Sean Walsh Senior Manager t: 353 1 792 6543 e: [email protected]

Tax Facts 2016 31 Local Property Tax

Local Property Tax payable in respect of building or structure (or part of a building) LPT Rates residential properties operates through a which is used as, or is suitable for use as, a system of self-assessment. The following dwelling and includes any shed, outhouse, The LPT rate is 0.18% for properties up to a persons are liable to pay LPT: garage or other building or structure and market value of €1 million. Above €100,000 includes grounds of up to one acre. there is a system of market value bands of • Owners of Irish residential property, €50,000 up to €1 million and the tax liability regardless of whether they live in Ireland or For 2016, an LPT liability will arise where a will be calculated by applying the tax rate to not. person owns a residential property in the the mid-point of the band. LPT on residential State on 1 November 2015. LPT will be based properties valued at over €1 million will be • Local authorities or social housing on the market value of a residential property charged at 0.18% on the first €1 million and organisations that own and provide social on the “valuation date”, i.e. 1 May 2013 for the 0.25% on the excess over €1 million. housing. four year period until 2016. • Lessees who hold long-term leases of For 2016, some local authorities have reduced residential property (for 20 years or more). their LPT rate resulting in six different LPT rates. The reductions range from 1.5% to • Holders of a life-interest in a residential 15%. Revenue will make the changes property. automatically. • Persons with a long-term right of residence (for life or for 20 years or more) that entitles LPT rate Local authority them to exclude any other person from the reduced by property. 1.5% Louth • Landlords where the property is rented 3% Longford under a short-term lease (for less than 20 years). 5% Cork County • Personal representatives for a deceased 7.5% Kildare, Monaghan owner (e.g. executor/administrator of an 10% Cork City estate). 15% Clare, Dublin City, Dun • Trustees, where a property is held in a trust. Laoghaire/ Rathdown, Fingal, South Dublin • Where none of the above categories of liable person applies, the person who occupies the property on a rent-free basis and without challenge to that occupation. The liable person in respect of the property is responsible for completing and submitting the Return and paying the tax due. For LPT purposes, residential property means any

Tax Facts 2016 32 Local Property Tax

Returns Late Payment/Non-Compliance The 2016 Payment Instruction was due to be If a liable person fails to submit a return, the submitted to Irish Revenue by 25 November Irish Revenue can estimate the LPT due. A 2015. Payment was due by 7 January 2016. rate of 8% per annum will be charged on the As outlined above, a property is not required amount outstanding. A maximum penalty of to be revalued for 2016. The market value / €3,000 will be imposed for failure to submit a valuation band declared on the 2013 LPT1 return or for knowingly undervaluing Return applies for the period 2013 – 2016. property to reduce LPT payable. Where the Any work carried out on a residential property LPT remains outstanding, a charge will attach under the Home Renovation Incentive will not to the property. affect the amount of LPT payable for 2014, 2015 and 2016. Chargeable Persons for Income Tax/ Corporation Tax/ Capital Gains Tax who are If arrangements have not been made to pay also designated liable persons for LPT may the tax in full or by phased payments incur a LPT generated surcharge of 10% of throughout 2016, the liable person should their Income Tax/ Corporation Tax/ Capital access the Revenue LPT On-line system Gains Tax liability, where the LPT return is immediately to file a 2016 Payment outstanding or an agreed payment Contact us: Instruction in order to minimise interest arrangement is not being met at the date of charges. If the liable person paid the 2015LPT filing the Income Tax/ Corporation Tax/ by phased payment method, deferred the full Capital Gains Tax Return. There are a limited charge or claimed an exemption, the current number of exemptions available. payment method/ exemption will automatically apply for 2016 and there is no requirement to contact Revenue.

There are various payment methods including Lisa McCourt payment by Single Debit Authority, Debit/ Senior Manager Credit Card, Direct Debit and voluntary t: 353 1 792 7492 deduction at source from salary, an e: [email protected] occupational pension and certain payments from Department of Social Protection or the Department of Agriculture, Food and the Marine. Where a liable person does not elect a method, the Irish Revenue may deduct the tax due at source (through the PAYE system, social welfare payments etc).

Tax Facts 2016 33 Income tax

Main personal tax credits and reliefs

2016 2015 Single person with no dependent child 1,650 1,650 Married or in a civil partnership 3,300 3,300 Widowed person or surviving civil partner with no dependent child 2,190 2,190 Widowed person or surviving civil partner bereaved in the year 3,300 3,300 Single parent with dependent child a 3,300 3,300 Widowed parent or surviving civil partner with dependent child - first year after bereavementb 5,250 5,250 Incapacitated child 3,300 3,300 Married couple or civil partnership - home carer c 1,000 810 Blind person’s tax credit: Single, married or in a civil partnership (one blind) 1,650 1,650 a. with effect from 1 January 2014, available for the principal carer of the child only Married or in a civil partnership (both blind) 3,300 3,300 b. reducing credit available for subsequent Dependent relative 70 70 years Age tax credit c. where carer’s income exceeds €€7,200, - Single, widowed or surviving civil partner 245 245 the tax credit is reduced by one half of - Married or in a civil partnership 490 490 the excess d. the relief is restricted to the first €1,000 Employee (PAYE) tax credit 1,650 1,650 per adult insured and the first €500 per Medical insurance d standard rate standard rate child insured

d e. the maximum limit on qualifying fees Dental insurance standard rate standard rate is €7,000 per person per course. The Certain fees for third level colleges standard rate standard rate first €2,750 paid for fulltime courses and the first €1,375 paid for part time e - maximum relief 7,000 7,000 courses is disregarded for the purpose of calculating the relief Local authority service charges Nil Nil f. expenses paid to nursing homes which f Medical expenses (no excess) standard rate standard rate provide 24 hour nursing care are tax relieved at the marginal tax rate

Tax Facts 2016 34 Income tax

Main tax allowances Income tax exemption limits

Allowances at marginal rate 2016 2015 Persons aged 65 and over 2016 2015 € € € € Employment and Investment scheme (EII) 150,000 150,000 Single, widowed or surviving civil partner a 18,000 18,000 - maximum relief per annum a Married or in a civil partnership a 36,000 36,000 Qualifying film reliefb 0 50,000 - maximum relief per annum a. There is an increase of €575 for each of the first two qualifying children and €830 for each subsequent child. Pension contributions Income tax rates Retirement annuity contracts - maximum % of net relevant earnings c,d 15%-40% 15%-40% 2016 2015 Occupational pensions € € c,d 15%-40% 15%-40% - maximum % of income 20% 40% 20% 41%

Permanent health benefit schemes Single, widowed or 10% 10% - maximum % of statutory income surviving civil partner: 33,800 balance 32,800 balance no dependent children a. The EII scheme is in place to 2020. The high earner’s restriction on the EII is not in place for a period of three years where the subscription for eligible shares is made after Single a, widowed or 15 October 2013 surviving civil partner: 37,800 balance 36,800 balance dependent children b. The Film Tax Relief Scheme is extended to 2020. The scheme has been reformed and has moved to a film corporation tax credit model with effect from 1 January 2015. Film Married couple or civil relief is a“specified relief” for the purpose of the high income earners restriction; see 42,800 balance 41,800 balance page 40 for details on how this restriction may affect the relief partnership: one income

c. the applicable percentage rate is based on age; see page 51 “Pension schemes” for Married couple or civil details partnership: both with 67,600 balance 65,600 balance incomes d. the applicable percentage rate is based on age; see page 51 “Pension schemes” for details a. This rate is available for the principal carer of the child only

Tax Facts 2016 35 Income tax

Maternity Benefit Secondly, the transfer of assets to a personal individuals in respect of foreign investment insolvency practitioner will not be liable to income (e.g. rental) and foreign source With effect from 1 July 2013, maternity capital gains tax. However, the practitioner employment income relating to overseas benefit, adoptive benefit and health and safety will be liable to capital gains tax on the duties. RBT is not available in relation to benefit are treated as taxable income and subsequent disposal of the asset. earnings from a foreign employment taxed under Schedule E as employment exercised in Ireland. Such earnings are liable income. They remain exempt from PRSI and Thirdly, any benefit arising from the write-off to PAYE, subject to certain exclusions. Where Universal Social Charge (USC). or reduction of debt under a Debt Relief RBT applies, the amount of foreign income Notice, Debt Settlement Arrangement or taxable in Ireland is limited to the amount Alimony/maintenance Personal Insolvency Arrangement will not be remitted to Ireland. Where an individual payments a gift or inheritance for CAT purposes. subject to RBT transfers foreign source income (or property bought using that In general, for payments under legally Finally, any Debt Settlement Arrangement or income) to their spouse or civil partner and enforceable maintenance agreements, income Personal Insolvency Arrangement will that income or property is remitted to Ireland, tax is not deducted at source and the payer provide for payment of current tax liabilities the remittance will be deemed to have been deducts the payments in computing total of the debtor and for the payment of any tax made by the individual. income for the tax year. The payments are liabilities of the personal insolvency assessed for income tax purposes as the practitioner during the course of such Capital gains arising on the disposal of recipient’s income. Payments for the benefit of arrangements. a child are made without deduction of tax at non-Irish assets by non-Irish domiciled source and do not reduce the total income of individuals are liable to Irish capital gains tax Remittance basis of taxation only to the extent that the gain is remitted to the payer for income tax purposes. Separated/ (RBT) divorced spouses and civil partners are Ireland. RBT provides favourable taxation treatment treated for tax purposes as single persons. The table below summarises the position: for Irish tax resident, non-Irish domiciled Personal Insolvency A number of changes to the law were made in Resident, non-Irish domiciled Income/gains 2013 in order to facilitate the personal taxable in Ireland insolvency legislation introduced in 2012. Irish source income yes

Firstly, the transfer of property under a Debt Foreign employment – Irish workdays yes Settlement Arrangement or a Personal Foreign employment – non-Irish workdays only if remitted Insolvency Arrangement to a person to be held in trust for the benefit of creditors (i.e. Foreign investment income (eg rental income) only if remitted personal insolvency practitioner) will not Irish capital gains yes trigger a clawback of capital allowances and, where rental income arises in respect of the Foreign capital gains only if remitted property while it is held by the practitioner, the debtor will remain liable to income tax in respect of that rental income. Tax Facts 2016 36 Income tax

Domicile levy under an Irish or non-Irish employment • have been employed on a full time basis by a contract. ‘relevant employer’ for the entire 12 months A domicile levy of up to €200,000 applies to immediately prior to arrival. individuals who are Irish domiciled Qualifying individuals will be entitled to irrespective of their tax residence position and exclude 30% of employment earnings over SARP conditions for individuals whether or not they hold Irish citizenship. €75,000 from the charge to Irish tax. For the arriving in Ireland from 2015 to 2017 Liability to the levy depends on the level of years 2012 to 2014, the maximum income For tax years 2015 to 2017, in order to qualify worldwide income and the value of Irish- upon which relief may be claimed was and claim SARP relief the individual must: located property. €500,000. This upper €500,000 threshold has been removed for 2015 and subsequent years. • have a ‘base salary’ of at least €75,000; The domicile levy must be paid on a self- assessment basis and any Irish income tax In addition, qualifying individuals are entitled • be tax resident in Ireland (the individual paid will be allowed as a credit against the to receive tax free payment or reimbursement may also be resident elsewhere); levy. Individuals liable to the levy must file a of the reasonable costs of one return trip to • have been non-resident in Ireland for the return and pay the appropriate levy by 31 their ‘home’ country and school fees (up to five years immediately preceding the year of October following the year end. €5,000 per annum) for each child, subject to arrival; and restrictions. The relief may be claimed Special assignment relief up-front by way of a payroll deduction or by • have been employed on a full-time basis by programme (SARP) way of a repayment after the tax year end. a ‘relevant employer’ for the entire 6 months immediately prior to arrival. A special expatriate assignment relief Either way, advance approval by Irish programme applies to certain employees Revenue is required. The relevant employer must have been assigned to Ireland to work for a period of at incorporated and resident in a country with SARP conditions for individuals least one year. The relief was first introduced which Ireland has either a double tax treaty or arriving in Ireland from 2012 to 2014 in 2009. A new enhanced scheme was an exchange of information agreement. From introduced for individuals arriving in Ireland For the years 2012 to 2014, in order to qualify 2015, the employer must certify to Irish from 2012. Further amendments were and claim SARP relief the individual must: Revenue within 30 days of the date the introduced to this enhanced scheme with individual arrives in Ireland, that the effect from 1 January 2015 which are • have a ‘base salary’ of at least €75,000; qualifying conditions have been met. designed to increase the take-up levels of • be tax resident in Ireland and not resident There are differing conditions in relation to SA R P. elsewhere; what is included as earnings both for the base The relief is available for a maximum of five • exercise predominantly all but incidental salary and the income to which the 30% is consecutive tax years both to Irish domiciled duties of their employment in Ireland applied. Certain other reliefs (e.g. for non- and certain non-Irish domiciled individuals during the assignment period; Irish workdays) cannot be claimed in who are required by their existing employer conjunction with SARP relief. The relief also • have been non-resident in Ireland for the organisation to come to Ireland between 2012 imposes certain reporting obligations on five years immediately preceding the year of and 2017 to work here for a minimum period employers. arrival; and of 12 months. The individual can be engaged

Tax Facts 2016 37 Income tax

It should be noted that, while the income is reference to the number of qualifying days Employment & Investment relieved from income tax, it is not relieved worked in a relevant State in the year over the Incentive / Seed Capital Scheme from the Universal Social Charge (USC) or number of days that the employment is held in PRSI (where applicable). the year. However, the reduction is capped at The Employment Investment Incentive (EII) is €35,000 in any year. a tax relief incentive scheme that provides tax Note: The ‘old’ SARP regime still applies for relief for investment in certain corporate employees who arrived in Ireland before For the years 2012 to 2014, the relief applies trades. The scheme allows an individual 2012. to individuals who spent at least 60 days a investor to obtain income tax relief on year working in Brazil, Russia, India, China, investments up to a maximum of €150,000 Cross border workers and South Africa and from (1 January 2013) per annum in each tax year up to 2020. The Algeria, The Democratic Republic of the minimum investment in any one company is Income tax relief is available to individuals Congo, Egypt, Ghana, Kenya, Nigeria, Senegal €250. Individuals interested in EII can invest who are resident in Ireland but who work and Tanzania. For the years 2015 to 2017, the directly through a private placement or outside Ireland. The relief operates in such a relief has been extended to include Japan, through a Designated Investment Fund. way as to effectively exclude from Irish tax the Singapore, South Korea, Saudi Arabia, the income arising from a qualifying employment. United Arab Emirates, Qatar, Bahrain, Income tax relief is granted in two In order to qualify for the relief, the individual Indonesia, Vietnam, Thailand, Chile, Oman, instalments - the initial, based on 30/40ths of must hold an employment outside Ireland for Kuwait, Mexico and Malaysia. the amount invested, is generally granted in a continuous period of at least 13 weeks in a the first year and the balance is deferred until country with which Ireland has a double tax Only periods comprising at least 4 consecutive the year of assessment following the later of 4 treaty. Income from the qualifying days working in these locations count towards years after the date the shares were issued or employment must be fully taxed in that the 60 day threshold for the years 2012 to trading commenced. Tax relief in respect of country and the foreign tax paid. The 2014. From 2015, the 60 day threshold has the deferred amount is conditional upon the individual must also be present in Ireland for been reduced to 40 days and only 3 investee company demonstrating that it has at least one day per week during the period of consecutive days working in these locations is increased employment numbers or research the qualifying employment. required to count towards the 40 day and development expenditure. threshold. Time spent travelling to/from Foreign earnings deduction Ireland or between relevant States will also be This scheme is available to the majority of (FED) deemed to be time spent in a relevant State, small and medium-sized trading companies that satisfy certain EU State Aid regulations. FED relief was introduced in 2012 to which was not previously the case. An overall limit of €15 million (and €5 million encourage companies that are expanding into annually) is placed on the amount of the emerging markets. The relief applies to investment raised by a qualifying company individuals who spend significant amounts of which can qualify for relief under the EII. time working in a relevant State.

The relief provides for a reduction in the individual’s employment income (excluding certain benefits in kind but including share based rewards) by apportioning the income by

Tax Facts 2016 38 Income tax

In order to qualify under the scheme, the • the employee must not have had a material First time buyers individual must subscribe on his/her own interest in the employer company; In the case of qualifying first time buyers, tax behalf for shares which: • the employee must perform at least 50% of relief is available on the first €10,000 of • represent new ordinary share capital in a their duties “in the conception, or creation interest paid each year (single person). The qualifying company, and of new knowledge, products, processes, rate at which tax relief will apply is based on a methods or systems”; and sliding scale (25% down to 20%) for the first • carry no preferential rights as to dividends, seven years of any qualifying loan but see the • at least 50% of the emoluments of the assets on a winding up or to be redeemed. exception below regarding properties employee must qualify as R&D expenditure. Shares must be held for at least four years if purchased between 1 January 2004 and 31 the investor wants to retain the full tax relief. The effective rate of tax of the employee December 2008. From year 8, the rates and Gains realised on the disposal of EII shares cannot be reduced below 23% and unused tax thresholds for relief are as for non-first time are subject to normal capital gains tax rules credits which the employee has been allocated buyers. but losses are not generally allowed due to the may be carried forward. The employee may availability of income tax relief. only make a claim to Irish Revenue for a tax Non-first time buyers refund after the tax year-end. For qualifying non-first time buyers tax relief The Seed Capital Scheme (SCS) is a slightly is available on the first €3,000 in interest paid more generous version of the EII that targets Relief for mortgage interest each year (single person). The rate of tax relief individuals who leave PAYE employment to payments is 15%. set out own companies. The SCS investor may Mortgage interest tax relief is no longer have been a top rate taxpayer when employed available for loans taken out after 31 Purchasers of properties between so the scheme is designed to allow him/her December 2012. However, tax relief at source 2004 and 2008: elect to shelter income earned during any of is available up to 2017 in respect of qualifying the previous 6 years in order to maximise the The rate of mortgage interest relief will be loans taken out on or before 31 December tax rebate. The maximum investment that increased to 30% for buyers who took out 2012 for residences situated in Ireland. From can qualify under SCS is €600,000 (€100,000 their first mortgage between 2004 and 2008. January 2014, lenders are obliged to grant per annum over 6 years). this tax relief at source (TRS) based on the The ceilings for tax relieved mortgage interest R&D tax credit amount of interest actually paid by the payments for 2016 are as follows: borrower within a tax year. This change will Companies may surrender a portion of their have no impact for borrowers who pay the First time Other R&D tax credit to reward key employees who correct mortgage amount on time, in buyers have been involved in the R&D activities of accordance with the terms of their loan. years 1-7 the company, allowing them to effectively However, where borrowers do not make € € receive part of their remuneration tax-free. In payment/s or pay less than the amount of Single 10,000 3,000 order to qualify as a ‘key employee’: interest charged to their account, the TRS Married/widowed 20,000 6,000 amount due will be reduced to reflect the Civil partnership/ • the employee must not have been a director actual amount paid. surviving civil partner of the employer company;

Tax Facts 2016 39 Income tax

Rent relief for private wear and tear on furniture and fittings and Living City Initiative accommodation repairs. A deduction is also allowed for interest on money borrowed for the purchase The Living City Initiative was introduced in In relation to new tenancies, relief for rent of, or repair to, the property. In the case of a Finance Act 2013 and has been amended and paid is no longer available. For individuals rented residential property, interest relief is updated in the two subsequent Finance Acts. who were paying rent in respect of a tenancy restricted to 75% and the tenancy must be Residential Property on 7 December 2010, relief is still available registered with the Private Residential but will be abolished by 2018. Relief is given Tenancy Board (PRTB). However, Finance Act The Living City Initiative is a relief for by way of a tax credit at 20% on the actual 2015 introduced measures whereby a 100% owner-occupiers in relation to expenditure rent paid. The maximum credit available for interest deduction can be claimed for certain incurred on the conversion or refurbishment 2016 is as follows: qualifying residential lettings. of certain residential properties located in defined special regeneration areas. The First time Other In general, a net rental loss can be offset qualifying locations will be in Limerick City, buyers against profit from another property or years 1-7 Waterford City, Cork, Galway, Dublin and carried forward against future rental profits. € € Kilkenny, but the exact detail of the qualifying Foreign rental losses can be offset against areas has yet to be announced. Single 240 120 foreign rental income only. Married/widowed 480 240 The relief takes the form of a deduction from Civil partnership/ Restriction of certain tax reliefs the individual’s total income for the year in surviving civil partner for high earners which the expenditure is incurred and the following nine years at a rate of 10% per Rent a room scheme Certain tax reliefs available to high income earners are restricted. A tapering restriction annum of the relevant conversion/ Income from the letting, as residential applies to individuals with income in excess of refurbishment expenditure. If, in any year, the accommodation, of a room in a person’s €125,000 (before claiming the specified tax property ceases to be used as the person’s only principal private residence is exempt from tax reliefs) and specified reliefs for the year or main residence, no relief will be available where the gross annual rental income with exceeding €80,000. This results in an for that year. If the property is sold at any effect from 1 January 2015 is not greater than effective rate of income tax of 32% where the time, there is no clawback of the relief €12,000 (previously €10,000). maximum restriction applies. claimed but the relief may not be claimed by a subsequent purchaser. The relief does not apply where the letting is Any reliefs not used in a particular tax year between connected parties. are carried forward. In the case of married The relief is limited to owner-occupiers and couples or civil partners, each spouse/civil consequently does not apply to rental Rental income partner is treated separately when calculating properties. Net profit arising from a rental property is this restriction. As such, each spouse or civil The relief is intended to include regeneration taxed at an individual’s marginal rate of tax. partner can benefit from the threshold of works on any residential buildings built prior Deductions in arriving at net profit include €125,000. Individuals subject to these to 1915 and now includes single-storey rates, management fees, maintenance, restrictions are obliged to file and pay via the buildings. insurance, certain legal and accountancy fees, Irish Revenue’s On-line system (ROS).

Tax Facts 2016 40 Income tax

Finance Act 2014 introduces measures to €1,600,000 in the case of a company and Childminding relief ensure that a claim for relief is made €400,000 in the case of an individual. electronically. The Act requires that certain Income tax is not payable on the earnings of information is provided to Revenue with the Where the expenditure is incurred by two or an individual arising from the taking care of claim, including details of the aggregate of all more persons (companies or individuals), the up to three children in the individual’s own qualifying expenditure incurred in respect of maximum amount of tax relief available home, provided the gross amount received is the qualifying premises. cannot exceed €200,000 in total. less than €15,000 a year. If such earnings exceed €15,000 the total amount is taxable. The relief is subject to EU approval and, when Commercial Property Certain conditions apply. effective, will apply for a period of five years. As regards commercial property, relief can be It will also be subject to a system of Self-assessment - payment and claimed for expenditure incurred on certain certification by the relevant Local Authority, returns commercial property located in a special details of which have yet to be announced. regeneration area. The relief is provided in the In general, self-assessment applies to all form of capital allowances for expenditure Employment of a carer individuals with non-PAYE income in excess incurred on the conversion or refurbishment of €5,000 and to all directors controlling 15% A tax allowance of up to €50,000 for the of a qualifying property. The capital or more of the share capital of certain actual cost of employing a person to care for allowances are available at a rate of 15% per companies. The self-assessment system places an incapacitated family member may be annum (years 1 – 6) and 10% (year 7). A the onus on the individual to file a return, claimed at the claimant’s marginal tax rate. clawback of capital allowances claimed can calculate the tax liability, and pay the relevant arise if the property is disposed of within 7 tax due. To avoid a surcharge, returns of years. income for the 2015 tax year must be filed on or before 31 October 2016. Any balance of tax The relief will apply to expenditure incurred due for the year must also be paid by this date, on the conversion/refurbishment of buildings provided preliminary tax obligations for the located in a special regeneration area that are year have been met (see below). in use for the purposes of the retailing of goods. To avoid interest charges, preliminary income tax due for 2016 must be paid by 31 October Broadly, the relief may be claimed by owner- 2016. The tax paid must represent at least occupiers or landlords but property 90% of the individual’s estimated liability for developers are excluded from claiming the 2016 or 100% of the ultimate liability for 2015 relief. Any relief claimed will be included in (before any Employment and Investment the calculation of the high earner’s restriction, Incentive (EII) relief and relief for investment where applicable. in films).

There are limits on the amount of qualifying expenditure on which relief can be claimed in relation to commercial premises. These are

Tax Facts 2016 41 Income tax

Self-assessed taxpayers are also liable to PRSI at 4% on their unearned income (e.g. Contact us: investment income, rental income). Previously, self-assessed contributors were exempt from making PRSI contributions on such income. Please refer to the “PRSI” section on page 48 for further details.

Certain individuals are obliged to file returns and pay any tax due electronically via the Irish Revenue’s On-line system (ROS), e.g. Mark Carter individuals claiming certain property Partner incentive reliefs, who acquire certain offshore t: 353 1 792 6548 products, or who claim relief for pension e: [email protected] contributions (RACs, AVCs), film relief etc.

The Irish Revenue generally announces an extension to mid-November to the ROS return filing and tax payment date for self- assessment income tax customers who both pay and file electronically. Frances Smith Planning tip! Senior Manager t: 353 1 792 6141 Your 2015 tax return is due by 31 October e: [email protected] 2016. If your total income for 2016 is less than that in 2015 consider basing your preliminary tax payment on the estimated 2016 liability.

Tax Facts 2016 42 Employee taxation

Termination payments (A x B /15) – C where: Planning tip! Payments made in connection with the A = average annual taxable remuneration for Ensure you know what counts as service for termination of an employment, on retirement the last 3 years’ service statutory redundancy, tax exemptions and or on removal, may qualify for one of the ex-gratia purposes. following tax exemptions (the highest B = number of complete years’ service exemption usually applies): C = net present value of any future tax free • Basic Exemption - €10,160 with an lump sum entitlement from an occupational For more information additional €765 for each complete year of pension scheme. No reduction applies where Contact: service. Generally applicable where an the individual irrevocably waives their right to employee’s length of service is short. the pension lump sum • Increased Exemption - the basic exemption The maximum exemption available in respect may be increased by up to €10,000. The of termination payments is restricted to a additional amount is reduced Euro for Euro lifetime limit of €200,000. Termination by the net present value of any future tax payments in excess of the applicable free lump sum entitlement from an exemption are subject to tax and the Universal occupational pension scheme. No reduction Social Charge (USC) but not PRSI. Mary O’Hara applies where the individual irrevocably Termination payments made in connection Partner waives their right to the pension lump sum. with the death of an employee or on account t: 353 1 792 6215 It cannot be claimed if an exemption other of injury to or disability of an employee are e: [email protected] than the Basic Exemption has been used by also subject to the €200,000 exemption limit. the individual in the previous ten tax years. Prior approval by Irish Revenue is no longer Special rules apply where two or more required, but employers still need to check termination payments are made by the same with the employee that the criteria have or associated employers. been met. Certain reliefs associated with termination • Standard Capital Superannuation Benefit payments have recently been abolished. In (SCSB) - generally for those employees with particular, Foreign Service Relief was Sean Walsh long service/high earnings but dependent abolished from 27 March 2013 and Top Senior Manager on pension choices of employee. It is based Slicing Relief was abolished from 1 January t: 353 1 792 6543 on average earnings and length of service 2014. e: [email protected] and is calculated as follows: Statutory redundancy payable under the Redundancy Payments Acts 1967-2012 continues to be exempt from tax, USC and PRSI.

Tax Facts 2016 43 Employee taxation

Benefits-in-kind (BIKs) - general BIK on preferential loans • the provision by an employer of a monthly or annual bus/train/Luas pass for The majority of employee benefits are subject In calculating the BIK charge in respect of employees. If certain conditions are met, it to PAYE, PRSI and the Universal Social preferential loans from employers, the is possible to provide such travel passes by Charge (USC). The taxable benefit is treated specified rates applicable for 2016 are 4% reducing gross salary. as “notional pay” from which PAYE, PRSI and (home loans) and 13.5% (other loans). The USC are deducted. BIK charge arises on the difference between • with effect from 22 October 2015, the the interest on the loan at the specified rate provision by an employer of a voucher or a BIK on company cars - general and the interest actually paid on the loan for non-cash benefit to a value not exceeding rules the year. €500. No more than one such benefit may be given to an employee in a tax year. The BIK charge applying to company cars is BIK on professional Certain other benefits are, by concession, payable under the PAYE system. The cash subscriptions equivalent of the private use of a company car treated as tax exempt. For details of the tax is calculated at 30% of the original market The BIK statutory exemption for professional treatment of employer contributions to value (OMV) with a reduction for business subscriptions was removed from 2011. The occupational pension schemes, refer to the travel over 24,000km. taxable benefit is treated as “notional pay” section “Pension schemes” on pages 51-55. from which PAYE, PRSI and the USC are A further reduction is available on a euro for deducted. There are certain limited Planning tip! euro basis for any amount made good by an exceptions where no BIK will arise, including employee directly to the employer in respect where there is a statutory requirement for If employees are contributing to the running of the cost of providing or running the car. membership of a professional body. costs of the car, consider whether such payments can be structured to reduce the Where an employee is required to work BIK on travel passes and small BIK charge. abroad for an extended period, the notional benefits pay is reduced by reference to the number of days spent working abroad. This is conditional The following benefits are exempt from on the employee travelling abroad without the income tax: Travel and subsistence car and the car not being available for use by Where an individual is obliged to use their • the provision of new bicycles and/or related family or household members. private car for business purposes and incurs safety equipment to employees up to a cost expenses in relation to the business use of the There is a 20% relief from notional pay on of €1,000, provided the bicycle is used for vehicle (e.g. petrol, insurance, tax) or an cars for employees whose annual business travel between home and the normal place individual incurs subsistence expenses when travel exceeds 8,000km, who spend 70% or of work or travel between work places. The performing their employment duties away more of their time away from their place of exemption can only be claimed once in a from their normal place of work, subject to work on business and who do not avail of the five year period. If certain conditions are certain conditions these expenses may be tapering relief for high business travel. met, it is possible to provide the benefit by reimbursed by the employer tax-free up to the reducing gross salary. level of the prevailing civil service rates.

Tax Facts 2016 44 Employee taxation

The following travel and subsistence rates may be paid tax-free for genuine business travel in Ireland subject to certain limits and conditions. (Alternative rates apply in respect of time spent For more information working abroad. The rates are dependent on work location and other factors). Contact: Motor travel rates

Official km in a Engine capacity Engine capacity Engine capacity calendar year up to 1,200cc 1,201cc to 1,500cc over 1,500cc

(cent) (cent) (cent) Up to 6,437km 39.12 46.25 59.07 Tara Murray 6,438km and over 21.22 23.62 28.46 Senior Manager t: 353 1 792 5465 Subsistence rates - within Ireland e: [email protected] Overnight rates (from 1 July 2015) Day rates (from 1 July 2015) normal rate reduced rate detention rate 10 hours between 5 & or more 10 hours € 125 € 112.50 € 62.50 € 33.61 € 14.01

Notes: The day rate applies in respect of a continuous absence of 5 hours or more from the employee’s normal place of work, provided the employee is not absent at a place within 5km of home or normal place of work. Advice should be taken before proceeding with any payments. Colm Waters Senior Manager Travel and subsistence expenses t: 353 1 792 6531 for Non-Executive Directors e: [email protected] (NEDs) From 1 January 2016, non-resident NEDs are exempt from income tax, USC and PRSI on vouched travel and subsistence costs incurred for the purposes of attending board meetings in Ireland.

Tax Facts 2016 45 Employee share schemes

Unapproved employee share commercial reasons. The permitted Revenue approved employee schemes abatement is determined by the period of share schemes years for which the restriction applies (e.g. Unapproved share option schemes 10% for a one-year restriction, 20% for a Approved profit sharing schemes Where an employee receives an unapproved two-year restriction) up to a maximum 60% Employees are exempt from income tax on share option, a charge to income tax arises on abatement for a restriction of greater than five shares received, up to the value of €12,700 exercise. Income tax may also arise at grant if years. The abated market value will also be annually, from Revenue approved profit the option is at a discount and is capable of used when calculating the USC and employee sharing schemes. However, employee PRSI being exercised 7 years after the date of grant. PRSI exposures. Employer withholding of and USC apply on appropriation and must be The taxable amount on exercise is the excess income tax, USC and employee PRSI through collected via employer payroll withholding. of the market value of the share over the the PAYE system is required. If shares are Significant employer PRSI savings are still option price. Income tax, the Universal Social awarded subject to forfeiture and a qualifying available. To avoid an income tax liability, the Charge (USC) and employee PRSI must be forfeiture ultimately occurs, employees may shares must be held in trust for a total of three remitted by the employee along with a Form seek tax, USC and PRSI rebates where tax is years. The profit sharing scheme must be RTSO1 within 30 days of exercise. paid in the year of acquisition. available to all employees on similar terms. A disposal of shares may give rise to a capital Free or discounted share schemes PRSI position for unapproved share gains tax liability. awards and share options Where free or discounted shares are awarded, Save As You Earn (SAYE) approved a tax charge arises for the recipient. The All forms of share based remuneration are share option schemes taxable benefit is equal to the fair market now liable to an employee PRSI charge. There value of the shares at the date when beneficial is no employer’s PRSI charge on any share Options under a Revenue approved SAYE ownership is transferred, less the employee’s based remuneration. scheme can be granted at a price discounted purchase price, if any. As a general rule, by up to 25% of the market value of the share. Restricted Stock Unit (RSU) plans also fall Planning tip! To fund the exercise of the option, employees within this category. Employers are obliged to must commit to regular monthly savings withhold income tax, USC and employee PRSI Employer PRSI costs of 10.75% could be saved (maximum €500) from after-tax income, over by remunerating employees with shares in the through the PAYE system when the shares are employer or parent company rather than cash. a period of 36 or 60 months. The SAYE delivered to employees. scheme must be open to all employees on similar terms. Subject to certain Restricted shares and forfeitable requirements, options granted under SAYE shares Planning tip! schemes are not liable to income tax on grant or exercise. However, the gain on exercise is Where share awards are ‘restricted’ such that Employees may be entitled to claim a reduction subject to employee PRSI and USC (collected the individual is precluded from selling the of between 10% and 60% in the taxable value of via employer payroll withholding for current shares for a certain period of time, and certain company shares received if there is an absolute restriction imposed on the sale of the shares employees). Capital gains tax may arise on the other conditions are met, the taxable value of and other conditions are met. sale of the shares. the shares can be abated. The prohibition on disposal must be absolute and for genuine

Tax Facts 2016 46 Employee share schemes

Planning tip! Tax treatment of loans from Shares delivered through a correctly employee benefit schemes Contact us: structured and Revenue-approved share New anti-avoidance legislation was scheme (e.g. APSS and SAYE) are exempt introduced in 2013 to counteract tax from income tax (up to 41% saving) and avoidance schemes where an employer, employer PRSI (10.75% saving). instead of paying salary or bonus, places funds in an unapproved employee benefit scheme (usually a discretionary trust located Employer reporting outside the State) or other structure from requirements which an employee (including former or Pat Mahon future employees or any connected person) Companies are required to submit annual Partner receives, on or after 13 February 2013, loans returns reporting any unapproved share T: 353 1 792 6186 or other assets from the scheme with no tax scheme activity during the year. This e: [email protected] arising under general or benefit-in-kind information is reportable on Form RSS1. Only income tax provisions. This anti-avoidance the grant, exercise, release and assignment of legislation is consistent with recently enacted share options and other similar rights are UK legislation intended to combat what is required to be declared on Form RSS1 and, described as “disguised remuneration”. from 2015, must be filed electronically by employers. The statutory reporting deadline is These new anti-avoidance measures will not 31 March following the end of the relevant tax apply to schemes that are approved by Irish year. Other share awards which are subject to Revenue such as Approved Profit Sharing Liam Doyle employer payroll withholding (e.g. RSUs, Schemes, Employee Share Ownership Trusts Director Restricted shares, Forfeitable shares) are not or Occupational Pension Schemes. Revenue t: 353 1 792 8638 required to be reported on Form RSS1. have also confirmed that these provisions are e: [email protected] Withholdings due on such share awards should not intended to impact on the current tax be remitted with the company’s P30 return for treatment of unapproved share option the month in which the shares are delivered. schemes, restricted shares (clog schemes) or The taxable benefit and associated RSUs. withholdings should be reported in the company’s annual end-of-year P35 return.

Annual scheme returns are also required for all approved share schemes. The reporting deadline is also 31 March following the end of the relevant tax year. In the case of approved profit sharing schemes, the trustees also have separate e-filing reporting obligations to meet by 31 October following the end of the tax year.

Tax Facts 2016 47 PRSI

Rates Self-employed PRSI (Class S)

Earnings Employer Employee Self-employed persons are liable for PRSI contributions in respect of income from a Class A - most employed persons trade or profession or from investment €38 - €352 inclusive per week 8.5% Nil income. The contributions are payable on €352.01 - €356 per week 8.5% 4% income net of capital allowances. The €356.01 per week or more 10.75% 4% minimum contribution payable for 2016 is €500. Payment must be included with Class S - self-employed people, including preliminary tax, which is payable on or before certain company directors N/a 4% 31 October each year.

Employee/Employer PRSI liable to PRSI. However, the Universal Social (Class A) Charge (USC) may still need to be applied to Planning tip! any taxable element of such payments. Most PRSI is charged on employment earnings The question of social insurance liability employed persons are liable to PRSI at Class including most benefits. Employees (known for Irish people working abroad and those A; however, other classes may apply in certain as “employed contributors” in PRSI coming to Ireland to take up employment circumstances (e.g. certain public sector legislation) who earn less than €352 in any should not be overlooked. Careful planning employments or employees aged over 66). week are not required to pay employee PRSI for international assignments can help to in that week, however employer PRSI is still All share awards, share options and Revenue reduce or eliminate the often higher cost due. The weekly PRSI exemption of €127 was approved share schemes (APSS / SAYE) are of social insurance abroad, particularly in abolished with effect from 1 January 2013. liable to employee PRSI. Share-based mainland Europe. However, the impact in remuneration is generally exempt from respect of benefits available must also be From 1 January 2014, employed contributors employer PRSI but liable to USC. No considered. who are also self-assessed taxpayers are liable deduction is available in calculating either to PRSI on unearned income (e.g. rental employer or employee PRSI contributions in profits). Previously, employed contributors respect of payments made by employees to were exempt from making PRSI contributions Planning tip! pensions. on such income. This change applies to Employer pension contributions qualify for full employees with significant amounts of relief in calculating employee and employer non-employment income (generally more PRSI contributions. This is something that than €5,000 per year) who, for this reason, should be considered by employers when are required to submit an annual Form 11 deciding on a reward policy for employees. self-assessment tax return. Such unearned income is liable to PRSI under Class K at 4%.

Certain taxable lump sum payments made to employees on leaving an employment (including redundancy and ex-gratia) are not

Tax Facts 2016 48 PRSI

PRSI classification of working directors Before 1 July 2013, the PRSI status of working directors was decided on a case-by-case basis under general employed v self-employed principles, including the guidelines outlined in the Code of Practice for Determining the Employment or Self-employment Status of Individuals.

From 1 July 2013, proprietary directors who own or control 50% or more of the shareholding of the company, either directly or indirectly, are considered self-employed contributors and are liable to pay PRSI at Class S on income from the company. Interestingly, the Act also provides that such directors are also insurable under Class S in respect of duties carried out in the period before 1 July 2013. However, should a working director believe that Class S should not apply before this date, then formal confirmation must be obtained from the Department of Social Protection.

The PRSI class of individuals who own or control less than 50% of the shareholding of the company will continue to be determined under general principles.

The above rules do not apply to the PRSI classification of non-executive directors. In the absence of an employment contract, fees paid to such directors will generally be subject to Class S contributions.

Tax Facts 2016 49 Universal Social Charge

The Universal Social Charge (USC) The USC is payable on gross income after relief for certain trading losses and capital allowances, but before relief for pension contributions.

2016 Bands Rate 2015 Bands Rate €0 - €12,012 1% €0 - €12,012 1.5%

€12,013 - €18,668 3% €12,013 - €17,576 3.5%

€18,669 to €70,044 5.5% €17,577 to €70,044 7%

€70,045 and above 8% €70,045 and above 8%

€100,000 and above 11% €100,000 and above 11% (self-assessed income (self-assessed income only) only)

Individuals aged over 70 or individuals in possession of a full medical card pay the USC at a maximum 3% rate on income above €13,000, provided their ‘aggregate’ income for the year is €60,000 or less. ‘Aggregate income’ does not include payments from the Department of Social Protection. A ‘GP only’ card is not considered to be a full medical card for USC purposes. Contact us: Planning tip! Social welfare payments are not considered reckonable earnings and are exempt from PRSI and the Universal Social Charge. In certain circumstances, there is now the potential for these payments to be made directly to the employer. It is possible with careful planning to reduce both employee Ken O’Brien and employer PRSI costs in this area where Director employees continue to be paid while taking t: 353 1 792 6818 certain leave of absence. e: [email protected]

Tax Facts 2016 50 Pension schemes

Certain rules apply throughout the pensions For PRSA plans (see below) an unrelieved pension plans. The percentage of an cycle. These are summarised below as benefit-in-kind charge arises on the excess individual’s earnings (subject to the upper follows: where employer contributions to the PRSA limit of €115,000 above) that qualifies for tax (when combined with the employees’) exceed relief each year is based on age as follows: • Pension contribution rules - the amount of the age related contribution limits outlined pension contributions that can be made by below. The unrelieved contribution can be Age attained Maximum individuals and employers carried forward and relieved in future years during tax year relief subject to the age related contribution limits. • Pension accumulation rules – the limits on Less than 30 15% how much pension benefits can be built up in a tax efficient manner for an individual Pension contribution rules - for 30 but less than 40 20% individuals, the earnings limits • Pension distribution rules - the options that 40 but less than 50 25% There are tax rules and limits regarding are available at retirement and their tax 50 but less than 55 30% treatment personal contributions made to approved pension plans. These limits apply to 55 but less than 60 35% Pension contribution rules - for employees who pay towards occupational 60 and over 40% employers pension schemes or Additional Voluntary Contribution (AVC) arrangements. The rules Employers qualify for tax relief when they These are the upper percentage limits that also apply where individuals contribute to make pension contributions to approved apply where both an employer and an Retirement Annuity Contracts (RACs) and pension plans on behalf of their employees. individual pay into a PRSA plan for that where individuals and their employers both Employees, on their part, are exempt from employee. For certain specified occupations pay into a Personal Retirement Savings Income Tax, PRSI and Universal Social Charge and professions a minimum rate of 30% Account (PRSA): (USC) where those employer contributions applies for individuals aged under 50. are made to an occupational pension scheme. • individuals can make pension contributions Previously, a liability to USC arose where the based on their annual earnings Pension accumulation rules – employer made pension contributions on (employment or self-employed income) the lifetime pensions limit behalf of employees to a Personal Retirement subject to a maximum annual earnings limit Whilst there are annual earnings and age Savings Account (PRSA). The USC liability no of €115,000 related limits for individual pension longer applies in respect of employer contributions, (the contribution rules can be contributions on or after 1 January 2016. • personal contributions to a pension plan qualify for tax relief but not for PRSI or USC more generous where employers make For occupational pension schemes, there is no relief pension contributions to an occupational specific monetary limit on the amount of pension scheme) there is also an overall employer pension contributions that can be Pension contribution rules - for lifetime pensions limit beyond which pension made but overall pension benefits at individuals, the age related funds cease to be tax efficient. The rules are retirement must fall within certain limits set limits broadly as follows: by Irish Revenue (see below regarding In addition to the earnings limit of €115,000 ’pension distribution rules’). above, there is also an age related limit for individual pension contributions to approved

Tax Facts 2016 51 Pension schemes

• the maximum tax relieved pension fund • in addition, the pension payable to the Pension distribution rules - limit from all pension arrangements is €2 individual, net of the 40% exit tax above, occupational pension schemes– million (from 1 January 2014) may be further liable to marginal rate the maximum pension allowed income tax etc, leading to penal effective • a higher personal fund threshold of up to rates of tax of around 70% on funds above Where an employer establishes an €2.3m can be agreed with the Revenue the threshold occupational pension scheme to provide (unless a personal fund threshold has been pension benefits to its employees at previously agreed with Revenue) where the • for private sector employees and the retirement, the following is the maximum value of an individual’s pension benefits at 1 self-employed, the tax on the pension value pension that can be provided: January 2014 already exceeded the €2 that exceeds the limit is generally deducted million limit. Applications for a personal from a member’s retirement benefits prior • a pension of up to 2/3rds of final fund threshold should have be made to the payment of the net benefits to the remuneration provided that the employee electronically on or before 1 July 2015 via individual has completed at least ten years of service to ROS or PAYE Anytime In such cases, only their normal retirement age. This overall • if the pension scheme discharges the tax pension benefits above the agreed personal pensions limit applies to defined benefit or without reducing member benefits, this will threshold are liable to penal rates of tax- see defined contribution type pension schemes be treated as a further benefit and a below and is inclusive of all contributions made by ‘re-grossing’ will be required to calculate both an employer and an employee and any • a 20:1 capitalisation factor is applied for the the correct tax due retained benefits (pensions from former purposes of valuing Defined Benefit (DB) • public service employees can, subject to employments/self-employments) pensions which have accrued at 1 January certain rules, discharge any such taxes by 2104. For the portion of DB pensions way of a reduced pension lump sum, by a accrued after 1 January 2014, a range of reduced pension over a specified period or age-related valuation factors apply ( from by settlement from their own resources 37: 1 for retirement at age 50 and 22:1 at age 70) • public sector employees with separate pension arrangements in respect of private • in valuing DB benefits for crystallisations on sector income can elect to encash their or after 1 January 2014 the pension is private sector pension, subject to certain valued before any pension that may be conditions, and pay a once-off tax at their ‘commuted’ in favour of a pension lump marginal tax rate, USC and PRSI on a lump sum sum withdrawal from their private pension. • where the aggregate value of all pension Encashed private pensions are not counted funds (which have been crystallised since 7 towards the overall lifetime pensions limit December 2005) at retirement exceeds the lifetime pensions limit, the excess is chargeable to exit tax at 40% (previously 41% on or before 31 December 2014)

Tax Facts 2016 52 Pension schemes

Pension distribution rules – • next €300,000 at the standard rate of Pension distribution rules – occupational pension schemes income tax ( 20%) but not PRSI or USC. The Approved Retirement Funds – the maximum lump sum standard rate income tax (20%) paid under (ARFs) allowed this rule is available as a credit against tax due where pension benefits exceed the At retirement, and as an alternative to buying Occupational pension schemes generally lifetime pensions limit (see ‘Pension a pension/ annuity for life, certain individuals allow members to opt for the first portion of accumulation rules’ above). can opt to invest in an ARF. An ARF is a fund their pension benefits in the form of a lump that is used by an individual to generate sum. The rules are as follows: • balance liable to marginal rate income tax, income during retirement. On death, any USC and PRSI. remaining value in the ARF can be passed on Pension lump sum to the individual’s survivors. No tax applies on Pension distribution rules- ARFs transferred to a spouse/ civil partner, • a lump sum of up to 1.5 times final PRSA and personal pensions but a tax of 30% applies where the ARF remuneration can be taken for members of unwinds and is left to one’s children (over 21). defined benefit pension schemes and for The self-employed (and employees who are Different rates of tax apply depending upon members of defined contribution schemes not members of an occupational pension plan the relationship of the beneficiary to the who elect for ‘old rules’ (i.e. a lump sum with their employer) can save for their deceased. based on salary and service, with the retirement using a PRSA or a Retirement Annuity Contract (RAC), collectively referred remaining fund being used to buy an ARF rules can be summarised as follows: annuity for life) to as personal pension plans. For personal pension plans, there is no specific Revenue • ARF options are available to those with or maximum pension that can be taken at personal pension plans (RAC contracts and retirement (as there are with occupational • defined contribution members and defined PRSA contracts), to AVC holders, to those in pension schemes where an employee’s salary benefit members owning more than 5% of defined contribution occupational pension and service with the employer are relevant). the company that employs them can instead schemes and those in defined benefit However, the total value of personal pension elect for a pension lump sum of up to 25% of occupational pension schemes where they plans must remain below the lifetime limits the value of the pension fund where they own/control more than 5% of the voting referred to above to avoid the penal taxation choose Approved Retirement Fund (ARF) shares of the company that employs them rates. options (see below) (i.e. proprietary director) For personal pension plans, the lump sum is • in the case of buy-out bonds, Revenue has Taxable portion of the lump sum calculated as 25% of the value of the fund. advised that, where the funds have When applying the limits below all pension The taxation of the lump sum and aggregation transferred directly from a defined benefits lump sums (from all revenue approved rules outlined above apply. scheme, the individual will need to have pension plans) taken since 7 December 2005 been a proprietary director in order to avail are aggregated in determining how the the ARF options current lump sum is taxed. The amounts are • to invest funds in an ARF at retirement, an as follows: individual must have at least €12,700 of • first €200,000 is tax free. other annual pension income already in

Tax Facts 2016 53 Pension schemes

payment. If the individual cannot satisfy New access rules for Additional this minimum income test they must Voluntary Contributions (AVCs) initially invest the first €63,500 of pension funds in an approved minimum retirement For a limited period of 3 years up to 26 March fund. Prior to 1 January 2015 the capital 2016, employees can withdraw up to 30% of could not be accessed until the earlier of their AVCs by way of a once-off refund. The reaching age 75, or the annual pension refund will be treated as income in the year of income subsequently exceeds €12,700, or receipt and liable to tax at an individual’s death. From 1 January 2015 holders of marginal rate (but exempt from USC and AMRFs are permitted to draw up to 4% per PRSI). The refund option will not apply where annum from the fund AVCs had bought ‘notional added years’ in Defined Benefit pension plans nor will it • after satisfying the €12,700 pension extend to other personal contributions to income test, or the approved minimum pension plans or to contributions made by retirement fund test, the balance of funds employers. can be invested in an ARF Any amount withdrawn under this option is • in the ARF (or vested PRSA), tax is payable not counted towards the lifetime limit as each year based on a percentage outlined in described above. the table below of the value of the ARF at 30 November each year, with a credit if actual distributions were made during the year • from 1 January 2015 the following table applies in relation to deemed distribution rules for ARFs and vested PRSAs:

Age for whole of tax year Where the value of all Where the value of all ARFs is under €2m ARFs is over €2m

Deemed distribution % Deemed distribution % Aged under 61 0% 0% Aged 61 to 70 4% 6% Aged 70 and over 5% 6%

Tax Facts 2016 54 Pension schemes

Contact us:

Alan Bigley, Partner Roger Murphy, Senior Manager t: 353 1 792 6403 Personal Pensions e: [email protected] t: 353 1 792 6527 e: [email protected]

Munro O’Dwyer, Director Corporate Pensions t: 353 1 792 8708 e: [email protected]

Tax Facts 2016 55 Capital gains tax

Individuals resident or ordinarily resident in Ireland are liable to Year expenditure Factor Year expenditure Factor capital gains tax (“CGT”) on gains from worldwide disposals. incurred** incurred Individuals resident or ordinarily resident, but not domiciled, in Ireland are liable on gains arising on the disposal of assets situated in 1974/75 7.528 1989/90 1.503 Ireland and on all other foreign gains to the extent that those gains are 1975/76 6.080 1990/91 1.442 remitted to Ireland. Individuals neither resident nor ordinarily resident are liable on gains made on the disposal of certain ‘specified assets’. 1976/77 5.238 1991/92 1.406 These include land and buildings situated in Ireland and shares 1977/78 4.490 1992/93 1.356 deriving the greater part of their value from such assets. 1978/79 4.148 1993/94 1.331 Irish resident companies are liable to corporation tax in respect of 1979/80 3.742 1994/95 1.309 ‘chargeable gains’ arising on worldwide disposals while non-resident companies are liable to CGT in respect of gains arising on disposals of 1980/81 3.240 1995/96 1.277 certain ‘specified assets’ which includes, in addition to the above, 1981/82 2.678 1996/97 1.251 certain assets used or held for the purposes of an Irish branch trade. 1982/83 2.253 1997/98 1.232 Rates 1983/84 2.003 1998/99 1.212 • The CGT rate is 33% (effective from 6 December 2012; previously 1984/85 1.819 1999/00 1.193 30%). Lower rates, 15% for a partnership / individual and 12.5% for a company, may apply in relation to chargeable gains arising on the 1985/86 1.713 2000/01 1.144 receipt of a “carried interest”, being a share of profits in certain 1986/87 1.637 2001 1.087 venture capital funds engaged in research, development or innovation activities. 1987/88 1.583 2002 1.049 • In arriving at the chargeable gain on the disposal of an asset that was 1988/89 1.553 2003 onwards 1.000 acquired prior to 31 December 2002, the allowable cost is to be adjusted for inflation based on the consumer price index up to that **Note: For all years to 2000/2001 inclusive, a year means a 12 month period commencing on date. Indexation factors for disposals in 2016 are as follows: 6 April and ending on the following 5 April.

Tax Facts 2016 56 Capital gains tax

Losses Exemptions and reliefs period 1 January 2014 to 31 December 2018. The tax credit, which is available on a Losses in any year are set off against The following are some of the main subsequent disposal of the chargeable chargeable gains arising in the same year. exemptions and reliefs are available: business asset, is the lower of (1) the CGT Unused losses may be carried forward • Annual exemption €1,270. For married paid on the original asset disposal (pro- indefinitely. Capital losses cannot generally be rated where the full proceeds were not carried back. Capital losses arising in relation couples or civil partners the exemption is €1,270 each (non-transferable) reinvested in a qualifying manner) or (2) to disposals to a connected person may only 50% of the CGT due on the subsequent be used to shelter chargeable gains on • Transfers between spouses/civil partners disposal. disposals to that same connected person. are generally treated as disposals on which Gains on development land may only be offset no gain/loss will arise Broadly, an “initial risk finance investment” by losses on development land. Inflation relief is defined as funding a “qualifying may not operate to convert a monetary gain • The gain on the disposal of an individual’s principal private residence. Certain enterprise” by way of equity or investment into an allowable loss or to increase a for the purpose of new business where the monetary loss. restrictions may apply where the residence has development potential, has been used funding does not exceed €15 million and is for business purposes and/or where the provided in full within six months of the Planning tip! property was not the individual’s principal commencement of the new business. private residence for the entire period of Review your asset portfolios prior to year ownership “Chargeable business assets” are assets end to consider whether any losses can be costing not less than €10,000 acquired on or crystallised in order to mitigate capital gains • A proportion of the gain on the disposal of after 1 January 2014 but on or before 31 tax liabilities. certain property purchased between 7 December 2018 which are either (1) used December 2011 and 31 December 2014. Full wholly for the purposes of a new business CGT relief is available if the property is sold carried on by a “qualifying enterprise” or seven years from the date it was acquired. (2) new ordinary shares in a “qualifying Where the property is held for a period in company” carrying on new business (or a excess of seven years, the relief is allowed in 100% parent of such a company). The the proportion that the seven years bears to individual must own at least 15% of the the total period of ownership. ordinary share capital and be a full-time • The gain on the disposal of a dwelling home working director of the “qualifying occupied rent-free by a dependent relative. company”. The chargeable business asset must be held for more than three years. • Entrepreneur Relief – pre 2016. This measure provides a CGT tax credit to A “qualifying company” is an unlisted individuals who use the proceeds of an asset “qualifying enterprise”. A “qualifying disposal, made on or after 1 January 2010 enterprise” is one that qualifies as a micro, and upon which CGT has been paid, to small or medium-sized enterprise under EU acquire certain chargeable business assets Commission Recommendations (i.e. fewer as an “initial risk finance investment” in the

Tax Facts 2016 57 Capital gains tax

than 250 employees and either annual The relief can also apply to shares in a basis for the period of five years ending with turnover of less than €50 million or a holding company whose business consists the disposal, or a child of a deceased child. balance sheet total of less than €43 million). wholly or mainly of holding at least 51% of The relief is limited to proceeds of €750,000 the shares in one or more companies (€500,000 in the case of a person aged 66 Where the subsequent disposal of the carrying on a qualifying business (a years or over) where the disposal is not to a chargeable business asset takes place on or “qualifying group”). The individual must child of the individual. The limits of €3 after 1 January 2016, Revised Entrepreneur have been a director or employee as above million and €500,000 respectively did not Relief (outlined below) will instead apply of one or more members of the qualifying apply for disposals made prior to 1 January unless the CGT payable is higher under the group. 2014. Revised Entrepreneur Relief than the • The gain on sale of Irish government amount payable under the original Retirement relief is extended to disposals of securities. Although no chargeable gain can Entrepreneur Relief. leased farmland where certain conditions arise on these assets, any accrued interest are met. Land which has been leased for up • Revised Entrepreneur Relief – Finance Act income in the consideration may, in certain to 25 years in total ending with the disposal 2015 provides for a revised entrepreneur circumstances, be charged to income tax. of that land will now qualify for relief relief for individuals applying to disposals of • Disposals of individual works of art which (previously 15 years). In all cases, the chargeable business assets from 1 January are valued at not less than €31,740 when person making the disposal must have 2016. A new reduced rate of CGT of 20% loaned to an approved gallery or museum owned and been farming the land for at applies to qualifying disposals up to a for public display for a minimum period of least 10 years prior to the first letting. lifetime limit of €1 million. ten years.

The subsequent disposal must be to a child A qualifying business for the purposes of • Retirement Relief for an individual aged 55 (including a niece or nephew who farms the the relief exclude businesses which consist years or more on disposal of a business or a land) or to another individual provided the of the holding of investments, the holding of farm owned for ten years or more (which disposal takes place before 31 December development land or the development or can also include assets held personally but 2016 or the land is being dispose of to an letting of land. The assets must have been used in the trade). An individual is not individual to whom it was leased for owned for a continuous period of not less required to retire in order to avail of this farming purposes and each letting of the than 3 years in the 5 years immediately relief. Where the disposal is to a child, and land was for a period of at least 5 prior to their disposal. Where the business is the person making the disposal is under 66 consecutive years. carried on by a private company, an years of age, full CGT retirement relief may

individual holding no less than 5% of the apply regardless of the consideration Land let on a conacre basis will now qualify shares in the company may qualify for received. Where the person making the provided the land is disposed of by 31 relief. The individual must have been a disposal is 66 years of age or over, the relief December 2016 or is leased before that date director or employee of the company, is limited to the amount that would apply if for a minimum period of 5 years (and a spending not less than 50% of their working the proceeds (or market value in the case of maximum of 25 years) ending with the time in the service of the company in a a gift) were capped at €3 million. For the disposal. managerial or technical capacity for a purpose of this exemption, a “child” continuous period of 3 years in the period of includes a nephew or niece who has worked • CGT exemption on gains arising from the 5 years immediately prior to the disposal. in the business substantially on a full-time disposal by farmers to active farmers of

Tax Facts 2016 58 Capital gains tax

payment entitlements under the “Single Impact of debt write-off Planning tip! Payment Scheme” where those entitlements Consider the tax impact of debt write off were fully leased Finance (No.2) Act 2013 introduced a restriction on the base cost allowable in in any debt negotiations to ensure that all • CGT relief for farm restructuring where a calculating the gain/ loss on disposal of a potential tax costs are factored into the sale, purchase or exchange of land occurs in chargeable asset in situations where a loan or discussions. the period from 1 January 2013 to 31 part of a loan, relating to the purchase or December 2016, provided certain enhancement of the disposed asset, has been conditions are met. forgiven or written off by the lender. As the Windfall Gains Tax investor will not have suffered a real • CGT exemption on gains arising on the The “windfall gains tax” charge of 80% in economic burden in respect of the portion of transfer of a site of up to 1 acre from a respect of disposals of development land the cost written off, a restriction on the parent to a child provided it is for the (where both a rezoning and a disposal took allowable base cost is imposed in these construction of the child’s principal private place on or after 30 October 2009) has been circumstances. Where a release of debt occurs residence and the market value of the site abolished. From 1 January 2015, such profits in a subsequent year, in circumstances where does not exceed €500,000. will be taxed at the standard rate of CGT a deduction has been taken in a prior year (currently 33%). The restrictions on the use • CGT exemption for Irish companies making CGT calculation, the amount of the release of indexation and the use on non-development disposals from qualifying holdings in will, in certain circumstances, be chargeable losses still apply to disposals of development companies which are tax resident in the EU to CGT in that year. This provision applies to land – it is only the windfall tax rate that has or countries with which Ireland has borrowings incurred by the person making been abolished. concluded a double tax treaty, subject to the disposal or to borrowings of a connected certain conditions. person. It does not apply to a debt write-off between group companies or to a debt write-off in respect of exempt assets in certain circumstances. The provision will be academic where the investor concerned has plentiful other CGT losses available for offset but may create a real tax cost in other circumstances and should be borne in mind in debt negotiations.

Tax Facts 2016 59 Capital gains tax

Self-assessment - payment and returns Contact us: Individuals • 15 December 2016 - payment of CGT for disposals made from 1 January 2016 to 30 November 2016. • 31 January 2017 - payment of CGT for disposals made from 1 December 2016 to 31 December 2016. Tim O’Rahilly Partner • 31 October 2016 - filing of 2015 return of t: 353 1 792 6862 income (including gains). This deadline can e: [email protected] be extended if filing online (see page 41).

Companies • The payment dates for CGT in respect of gains arising to companies from disposals of development land are the same as the CGT payment dates for individuals above. • For disposals of assets other than Marie Flynn development land by companies, the Director payment and filing deadlines are as set out t: 353 1 792 6449 on page 9. e: marie.flynn @ie.pwc.com

Tax Facts 2016 60 Capital acquisitions tax

General Group A Self-assessment - payment and returns Capital acquisitions tax (“CAT”) comprises Applies where the beneficiary is a child or principally gift and inheritance tax. CAT minor child of a deceased child of the Self-assessment applies to gift and inheritance applies in the case of a person becoming disponer, or a foster child (subject to certain tax. The pay and file date is 31 October for beneficially entitled to property, either by way conditions) of the disponer, or a child of the gifts and inheritances which have a valuation of a gift or on a death, for less than full civil partner of the disponer, or a minor child date falling in the 12 month period ending on consideration. The charge to CAT for gifts or of a deceased child’s civil partner. This the previous 31 August. The obligation to file inheritances will generally arise where: threshold also applies to inheritances taken by a return only applies where 80% of the group a parent from a deceased child, subject to threshold is exceeded and the return is filed • the disponer (the person providing the certain exceptions. by the beneficiary. benefit) is resident or ordinarily resident in Ireland, or Group B Planning tip! • the beneficiary is resident or ordinarily Applies where the beneficiary is a lineal resident in Ireland, or ancestor, lineal descendant (other than a Make use of reduced asset values to transfer wealth to the next generation at a lower tax • the subject matter of the gift or inheritance child, or minor child of a deceased child), a cost or, where certain reliefs apply, at no tax is situated in Ireland brother, sister, or a child of a brother or sister of the disponer, or a child of a civil partner of cost. Remember, you can transfer wealth to Special rules apply to non-domiciled a brother or sister of the disponer. the next generation while retaining control disponers and beneficiaries. over the assets transferred. Group C Calculation of CAT Applies where the beneficiary is not related as Gifts or inheritances taken on or after 5 outlined for Group A or Group B. Main exemptions December 1991 from disponers within the Subject to certain conditions, the following same group threshold (see below) must be The thresholds for gifts and inheritances are exempt from CAT: taken into account when calculating CAT. taken on or after 14 October 2015 are: These gifts or inheritances serve to reduce, or • the first €3,000 of gifts taken by a • Group A €280,000 cancel out, the amount of the tax free beneficiary from any one disponer in a threshold available. From 6 December 2012 • Group B €30,150 calendar year amounts in excess of the threshold are taxed • Group C €15,075 • gifts and inheritances between spouses and at 33% (previously 30%). civil partners The Group A threshold for gifts and There are three categories which are based on inheritances taken between 6 December 2012 • transfers of property by virtue of any order the relationship between the disponer and the and 13 October 2015 was €225,000. Different under the Family Law Acts 1995 or 1996 in beneficiary: threshold amounts apply to each group for relation to a divorce/dissolution gifts and inheritances taken before 6 December 2012.

Tax Facts 2016 61 Capital acquisitions tax

• transfers of property by virtue of any order inheritance was made up of agricultural under the Cohabitants Act 2010 in relation assets. With effect from 1 January 2015, in Contact us: to the break-up of a relationship addition to the 80% asset test, there is a new “active farmer” requirement. It is important • a gift or inheritance consisting of a dwelling that beneficiaries ensure that this condition house that is the only or main residence of is met when claiming the relief. the beneficiary • the proceeds of certain life policies Discretionary trust • gifts or inheritances for public or charitable There is a once-off levy of 6% on certain discretionary trusts (and similar entities such purposes Tim O’Rahilly as foundations) which may, in particular Partner • certain receipts by a child of the disponer, a circumstances, be reduced to 3%. At present t: 353 1 792 6862 child of a civil partner of the disponer, or a the levy becomes payable on the latest of the e: [email protected] person to whom the disponer stands in loco following events: parentis, for support, maintenance and education where the child is under 18, or • the date the property is placed in trust* under 25 if they remain in full-time • the date of death of the settlor education. • the date on which the youngest principal Main reliefs object of the trust attains the age of 21. • Business relief: a 90% reduction in the market value of a benefit can be applied if *Property will be treated as being subject to a Beryl Power the benefit consists of relevant business discretionary trust on the date of death of the Senior Manager property (such as unincorporated disponer where the discretionary trust is t: 353 1 792 6285 businesses, shares in certain family created in the disponer’s will. e: [email protected] companies) where certain conditions are Discretionary trusts (and similar entities such met. as foundations) which are liable to the • Agricultural relief: a 90% reduction in the once-off levy are also liable to an annual levy market value of agricultural property (such of 1%. as agricultural land, livestock and machinery) can be applied where certain Planning tip! conditions are met. For gifts and inheritances taken up to 31 December 2014, Consider the impact of inheritance tax when the main test for this relief was for the planning your will. You should ensure that recipient to show that at least 80% of the your will is tax efficient. Remember that value of his/her assets after taking the gift/ separate wills are needed for foreign assets.

Tax Facts 2016 62 Local taxes

Local taxes known as ‘rates’ are not based on to collect 22 cent in respect of every plastic income but rather are levied on the occupiers bag or bag containing plastic, regardless of of business property by reference to a deemed size, unless specifically exempted, that is rental value of the property concerned. The provided to customers and remit all plastic level of rates levied can depend on the region bag levies collected to Irish Revenue. As a in which the property is located. Rates are an result of the levy, most non-supermarket allowable deduction for corporation tax retailers provide paper carrier bags, and many purposes. supermarket retailers offer for sale ‘bags for life’ (i.e. re-usable bags), which are not Local authorities are also empowered to levy subject to the environmental levy. charges on all occupiers for specific services Contact us: (e.g. water supply). These charges are also Carbon tax deductible for corporation tax purposes. Ireland levies a carbon tax on mineral oils Carbon Tax (e.g. auto fuels, kerosene) which are supplied in Ireland. The rate of carbon tax broadly Emissions allowances equates to EUR 20 per tonne of CO2 emitted. Relief applies where mineral oils are supplied Irish tax legislation contains provisions to Emissions Trading Scheme (ETS) dealing with the tax treatment of emission Ronan MacNioclais installations, to combined heat and power allowances under the EU Emissions Trading Partner plants or for electricity generation. Relief also Scheme. The legislation distinguishes t: 353 1 792 6006 applies to biofuels. between allowances acquired free of charge e: [email protected] from the Environment Protection Agency Carbon tax also applies to natural gas and under the EU Scheme and those which are solid fuel where supplied for combustion. purchased. Again, reliefs apply where these fuels are supplied to ETS installations, CHP plants, for Allowances which are purchased are treated electricity generation or for use in chemical as trading assets, subject to corporation tax reduction, electrolytical or metallurgical treatment. Allowances which are acquired processes. free of charge are subject to capital gains tax Mary Douglas treatment. Reliefs also apply for solid fuels which contain Director a high biomass content. The relief will be t: 353 1 792 7024 Environmental taxes determined by reference to the level of e: [email protected] In Ireland, a levy (currently 22 cent per bag) is biomass content of the solid fuel. imposed upon consumers provided with a plastic bag when purchasing goods in supermarkets and other retail outlets. Under the applicable legislation, retailers are obliged

Tax Facts 2016 63 Customs and excise

Customs It should be noted that no customs duties arise In addition, Ireland applies excise duties to on goods “imported” from other EU Member electricity, betting and the first registration of Goods imported into Ireland from countries States provided they originate in the EU or vehicles in the State (the latter is known as outside the European Union (“EU”) are liable have been customs cleared in another VRT). The current VRT regime for motor to customs duty at the appropriate rates Member State of the EU. vehicles is based on a CO2 emissions rating specified in the EU’s Combined Nomenclature system and charged on the “open market (CN) Tariff. These rates vary from 0% to 14% Excise selling price” of the vehicle. Specific for industrial goods, with much higher rates reductions in VRT apply to electric and hybrid Excise duties are charged on mineral oils applicable to agricultural products. Imports vehicles subject to certain conditions being (including petrol and diesel), alcohol products may qualify for a partial or full reduction in met. In addition there are reliefs available for (including spirits, beer, wine, cider and perry) rates in specific circumstances. cars imported temporarily by non-residents, and tobacco products where they are or imported on transfer of residence to Ireland The three main elements (“customs duty consumed in Ireland. Reduced rates of excise (such VRT reliefs require prior approval from drivers”) that determine the duty liability duty may apply when setting up a the Customs authorities). arising on goods imported into the EU from a microbrewery in Ireland (depending on non-EU country are (i) the product’s production quantities). commodity code (Tariff Classification); (ii) its customs valuation; and (iii) its origin. Each of In addition, a diesel rebate scheme was these elements will need to be considered recently introduced in Ireland . It provides when determining the customs duty cost at hauliers or coach/bus owners with an import. opportunity to claim a partial refund of excise duty paid on fuel used in specifically There are special customs procedures which designated vehicles for the purposes of allow for the import of goods into the EU from transporting goods or passengers. Contact us: non-EU countries with full or partial relief from customs duty or under a suspension of Excise duties are not charged on the export or customs duty. Examples of these are Customs sale of excisable goods to other EU countries Warehousing, Inward Processing Relief, but special control arrangements apply to the Processing under Customs Controls and intra-EU movement of such goods. Outward Processing Relief. There are different conditions attached to each customs special procedure and an analysis of the trade footprint of the importer of the goods will John O’Loughlin need to be considered in order to determine Senior Manager whether or not they may avail of one of these t: 353 1 792 6093 reliefs. These procedures are important and e: [email protected] are in place with the intention of stimulating economic activity within the EU.

Tax Facts 2016 64 Tax contacts

Tax & Legal Services Ronan Finn Jim McDonnell George Reddin Leader Transfer Pricing Financial Services & Domestic & International International Structuring, Public Sector Joe Tynan Denis Harrington Structuring Inward Investment & Dermot Reilly Business taxation International James McNally Domestic & International Structuring Company Administration Structuring, Private Clients Alan Bigley Services, Payroll, Private Clients Mary Honohan Pharmaceuticals Gavan Ryle Pensions Inward Investment & Transfer Pricing International John Murphy Paraic Burke Structuring, Consumer Products Domestic & International Yvonne Thompson Domestic & International & Retail Structuring, Technology Financial Services & Structuring Companies, Mergers & International Structuring Consumer Products & Retail Susan Kilty Acquisitions Aviation Leasing Inward Investment & Marie Coady International Structuring, Carmel O’Connor Joe Tynan Financial Services & Technology, InfoComms, EU Taxes, Consumer Products Inward Investment & International Structuring Entertainment & Media, & Retail International Structuring, Global Compliance Services Technology, InfoComms, Jean Delaney Terry O’Driscoll Entertainment & Media, R&D Inward Investment & Brian Leonard Domestic & International Tax Credits, Intellectual Property International Financial Services & Structuring, Structuring International Structuring Consumer Products & Retail, Customs & Trade Aviation Leasing Mergers & Acquisitions Liam Diamond Ronan MacNioclais John O’Leary Inward Investment & Domestic & International Financial Services & International Structuring, International Structuring Structuring Carbon Tax, Energy & Renewables, Mergers Tim O’Rahilly Enda Faughnan & Acquisitions Private Clients, Real Estate Financial Services & International Teresa McColgan Structuring Private Companies, Not-for- Real Estate Profit, Health & Education

Tax Facts 2016 65 Tax contacts

Individual taxation VAT Dublin Limerick

Mark Carter Sean Brodie One Spencer Dock, Bank Place, Limerick Employment Taxes, Global North Wall Quay, Dublin 1 Tel + 353 (0) 61 212 300 Mobility, HR Services Tom Corbett Tel: +353 (0) 1 792 6000 Fax + 353 (0) 61 416 331

Pat Mahon John Fay Cork Waterford Employment Taxes, Share Incentive Schemes, Caroline McDonnell 1 South Mall, Cork Ballycar House, Newtown, Revenue Audits Tel + 353 (0) 21 427 6631 Waterford Cork Fax + 353 (0) 21 427 6630 Tel + 353 (0) 51 874 858 Mary O’Hara Fax + 353 (0) 51 872 312 Nicola Quinn Employment Taxes, Reward, Galway Workforce Reshaping Wexford Mid West Harris House, IDA Small Business Centre, Cornmarket, Wexford Anita Kissane Tuam Road, Galway Tel + 353 (0) 53 915 2400 Tel + 353 (0) 91 764 620 Fax + 353 (0) 53 915 2440 South East Fax + 353 (0) 91 764 621

Ronan Furlong Kilkenny

Leggetsrath Business Park, Dublin Road, Kilkenny Tel + 353 (0) 56 770 4900 Fax + 353 (0) 56 776 5962

Tax Facts 2016 66 Appendix 1

Withholding tax on payments from Ireland

Country Dividends Interest Royalties NoteCountry 1: Dividends Interest Royalties Domestic legislation may also provide an exemption from the dividend % % % % % % withholding tax subject to providing the necessary documentary Non-Treaty Countries 20 20 20 evidenceHungary of qualification. An exemption5/15 may also be available0 under 0 Albania 0/5/10 0/7 7 theIceland EU Parent-Subsidiary Directive. 5/15 0 0/10 Armenia 0/5/15 0/5/10 5 India 10 0/10 10 Note 2: Australia 0 10 10 TheIsrael EU Interest and Royalties Directive may0 provide5/10 an exemption 10 Austria 0 0 0 fromItaly withholding tax for payments between15 associated10 2companies. 0 Bahrain 0 0 0 Japan 20 10 10 Note 3: Belarus 0/5/10 0/5 5 Korea (Republic of) 0 0 0 In general, in the case of royalties withholding tax applies only to Belgium 0 15 2 0 patentKuwait royalties. 0 0 5 Bosnia Herzegovinia 0 0 0 Latvia 5/15 0/10 2 5/10 2 Note 4: Botswana 5 0/5 0/7.5 0/7.5 Lithuania 5/15 0/10 2 5/10 2 Under domestic legislation withholding tax will not apply if the loans 2 2 Bulgaria 5/10 0/5 10 orLuxembourg advances are for a period of less than20 one year or if the0 interest is 0 Canada 5/15 0/10 0/10 paidMacedonia in the course of a trade or business0/5/10 to a company resident0 in an EU0 Chile 5/15 5/15 5/10 orMalaysia treaty country and that country imposes10 a tax that0/10 generally applies8 China 5/10 0/10 6/10 toMalta foreign interest receivable. 5/15 0 5 2 Croatia 5/10 0 10 2 NoteMexico 5: 5/10 0/5/10 10 Cyprus 0 0 0/5 2 AsMoldova of 1 January 2015 treaty but is not 5/10yet in force. 0/5 5 Czech Republic 5/15 0 10 2 Montenegro 0/5/10 0/10 5/10 Denmark 0 0 0 Morocco 6/10 0/10 10 Egypt 5/10 0/10 10 Netherlands 0/15 0 0 Estonia 5/15 0/10 2 5/10 2 New Zealand 0 10 10 Ethiopia 5 5 0/5 5 Norway 0/5/15 0 0 Finland 0 0 0 Special Pakistan 20 0 provisions France 20 0 0 Panama 5 Georgia 0/5/10 0 0 0/5 5 2 2 Germany 5/15 0 0 Poland 0/15 0/10 10 2 2 Greece 5/15 5 2 5 2 Portugal 15 0/15 10 Hong Kong 0 0/10 3 Qatar 0 0 5

Tax Facts 2016 67 Appendix 1

Withholding tax on payments from Ireland (continued) Country Dividends Interest Royalties Note 1: Domestic legislation may also provide an exemption from the dividend % % % withholding tax subject to providing the necessary documentary 2 2 Romania 3 0/3 0/3 evidence of qualification. An exemption may also be available under Russia 10 0 0 the EU Parent-Subsidiary Directive. Saudi Arabia 0/5 0 5/8 Note 2: Serbia 5/10 0/10 5/10 The EU Interest and Royalties Directive may provide an exemption Singapore 0 0/5 5 from withholding tax for payments between associated companies. Slovak Republic 0/10 0 0/10 2 Note 3: Slovenia 5/15 0/5 2 5 2 In general, in the case of royalties withholding tax applies only to South Africa 5/10 0 0 patent royalties. Spain 0 0 5/8/10 2 Note 4: Sweden 0 0 0 Under domestic legislation withholding tax will not apply if the loans Switzerland 0 0 0 or advances are for a period of less than one year or if the interest is Thailand 10 0/10/15 5/10/15 paid in the course of a trade or business to a company resident in an EU Turkey 5/15 10/15 10 or treaty country and that country imposes a tax that generally applies Ukraine 5/15 5/10 5/10 to foreign interest receivable. United Arab Emirates 0 0 0 Note 5: United Kingdom 5/15 0 0 As of 1 January 2016 treaty is not yet in force. United States 5/15 0 0 Uzbekistan 5/10 5 5 Vietnam 5/10 0/10 5/10/15 Zambia 0 0 0

Tax Facts 2016 68 Appendix 2

Withholding tax on payments to Ireland

Country Dividends Interest Royalties Country Dividends Interest Royalties % % % % % % Albania 0/5/10 0/7 7 India 10 0/10 10 Armenia 0/5/15 0/5/10 5 Israel 10 5/10 10 Australia 15 10 10 Italy 15 1 10 2 0 Austria 10 1 0 0/10 2 Japan 10/15 10 10 Bahrain 0 0 0 Korea (Republic of) 10/15 0 0 Belarus 0/5/10 0/5 5 Kuwait 0 0 5 Belgium 15 1 15 2 0 Latvia 5/15 1 0/10 2 5/10 2 Bosnia Herzegovinia 0 0 0 Lithuania 5/15 1 0/10 2 5/10 2 Botswana 5 0/5 0/7.5 0/7.5 Luxembourg 5/15 1 0 0 Bulgaria 5/10 1 0/5 2 10 2 Macedonia 0/5/10 0 0 Canada 5/15 0/10 0/10 Malaysia 10 0/10 8 Chile 5/15 5/15 5/10 Malta 5/15 1&3 0 5 2 China 5/10 0/10 6/10 Mexico 5/10 0/5/10 10 Croatia 5/10 0 10 2 Moldova 5/10 0/5 5 Cyprus 0 0 0/5 2 Montenegro 0/5/10 0/10 5/10 Czech Republic 5/15 1 0 10 2 Morocco 6/10 0/10 10 Denmark 0/15 1 0 0 Netherlands 0/15 1 0 0 Egypt 5/10 0/10 10 New Zealand 15 10 10 Estonia 5/15 1 0/10 2 5/10 2 Norway 0/5/15 0 0 Ethiopia 5 5 0/5 5 Special Pakistan 10 0 Finland 0/15 1 0 0 provisions France 10/15 1 0 0 Panama 5 0/5 5 1 2 2 Georgia 0/5/10 0 0 Poland 0/15 0/10 10 1 2 2 Germany 5/15 1 0 0 Portugal 15 0/15 10 Greece 5/15 1 5 2 5 2 Qatar 0 0 5 1 2 2 Hong Kong 0 0/10 3 Romania 3 0/3 0/3 Hungary 5/15 1 0 0 Russia 10 0 0 Iceland 5/15 0 0/10 Saudi Arabia 0/5 0 5/8

Tax Facts 2016 69 Appendix 2

Withholding tax on payments to Ireland (continued)

Country Dividends Interest Royalties Note 1: A complete exemption from dividend withholding tax may be available % % % under the EU Parent-Subsidiary Directive. Serbia 5/10 0/10 5/10 Singapore 0 0/5 5 Note 2: A complete exemption from interest and royalty withholding tax may Slovak Republic 0/10 1 0 0/10 2 be available under the EU Interest and Royalties Directive. Slovenia 5/15 1 0/5 2 5 2 South Africa 5/10 0 0 Note 3: Malta tax on gross amount of the dividend shall not exceed that Spain 0/15 1 0 5/8/10 2 chargeable on the profits out of which the dividends are paid. Sweden 5/15 1 0 0 Switzerland 5/10/15 0 0 Note 4: Thailand 10 0/10/15 5/10/15 The UK does not operate dividend withholding tax. Turkey 5/10/15 10/15 10 Note 5: Ukraine 5/15 5/10 5 As of 1 January 2016, treaty is not yet in force. United Arab Emirates 0 0 0 United Kingdom 5/15 4 0 0 United States 5/15 0 0 Uzbekistan 5/10 5 5 Vietnam 5/10 0/10 5/10/15 Zambia 0 0 0

Tax Facts 2016 70 www.pwc.ie

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