This is the fifth and final Budget of the current government and, following another year of budget surplus funded principally by excess corporation tax receipts, there has been much anticipation as to how these funds would be spent in advance of the as yet unannounced election.
In total, spending measures of €8.3bn were announced. While changes to income tax provisions had received the majority of the media attention in the lead up to the Budget, there are a number of significant measures of interest for the business community.
We have highlighted below the key updates from today's announcements and will be watching closely to see how these are implemented in the Finance Bill, which is due to be published next week, and which itself may include further unannounced measures.
Corporation tax: new participation exemption for foreign dividends
The long-awaited dividend participation exemption for foreign dividends has been formally announced and will come into effect from 1 January 2025. This change will be very welcome for those companies that are in receipt of foreign dividends and currently have to navigate the existing, highly complex, tax credit system.
The Department of Finance has recently run two consultation processes, which give insight into the detailed provisions we will expect to see in the Finance Bill next week:
- a 100% exemption from tax will be available in respect of qualifying dividends
- the exemption will apply to dividends received from a 5% (direct or indirect) subsidiary in an EU/EEA state or jurisdictions with which Ireland has a double tax treaty
- the exemption will not require that the distribution is paid from “trading” profits
- the exemption will be optional; companies can elect to remain within the current tax credit system if preferred
- this change will necessitate corresponding changes to other tax legislation, including CFC rules, the treatment of unit trusts and collective investments, and transfer pricing. We will monitor these changes closely to ensure there are no unanticipated effects for companies.
The limited geographic scope of the exemption was raised by multiple respondents to the feedback statements. While it seems like that this limitation will be included in the legislation, the Minister has committed to giving this further consideration in line with the ongoing implementation of the OECD Pillar Two measures.
The Minister also announced that an exemption for foreign branch profits will be considered next year.
Measures to encourage stock exchange listings
The Irish Stock Exchange has seen a number of companies move their listings to the US recently and there have been calls for policy measures to encourage further listing activity in Ireland.
The Minister has proposed a new measure giving relief for expenses incurred wholly and exclusively for the purposes of an initial listing on a recognised stock exchange in Ireland or another EU/EEA state. This will be subject to an overall cap of €1m and will apply to successful listings completed on or after 1 January 2025.
The Minister also mentioned in his speech that in the coming year a Stamp Duty exemption would be introduced, subject to obtaining State aid approval. No further details have been provided on this so the scope of this exemption is, as of yet, unknown.
Tax incentives for businesses
A number of existing tax incentives have been expanded and or extended:
- The existing Research and Development (R&D) Tax Credit provides a 30% tax credit for all qualifying R&D expenditure. The Credit will be increased to allow for payments of up to €75,000 (up from €50,000) in the first year of a claim.
- A new CGT relief for “Angel Investors” was announced in Budget 2024 and is due to come into effect shortly. This gives relief for investors who are unconnected with the business and invest at least €10,000 to acquire up to 49% of the start-up’s ordinary share capital (or €20,000 if they acquire less than 5% of the ordinary share capital). Investors can avail of a reduced rate of CGT (16% for individuals, or 18% if through a partnership) on their investment gains. Initially this was subject to a lifetime limit of €3m, but this will now be increased to €10m.
- Other existing schemes to incentivise investment in SMEs (Employment Investment Incentive (EII), Start-Up Relief for Entrepreneurs (SURE) and Start-up Capital Incentive (SCI) have each been extended for a further two years to 31 December 2025. In addition, the EII limit will double to €1m and relief under SURE will increase to a maximum of €140,000 per year (or a total of €980,000 over 7 years).
- As promised in Budget 2024, a new tax credit will be introduced for the unscripted film production sector. This will be available at a rate of 20% of certain expenditure up to a maximum of €15m per project. In addition an 8% uplift (referred to as the “Scéal Uplift”) will be applied to the existing film tax credit in respect of projects with a maximum qualifying expenditure of up to €20m.
Property taxes
- The 10% rate of Stamp Duty which applies to bulk purchases of houses (meaning the acquisition of 10 or more houses in a 12-month period) has been increased to 15% from the existing 10% rate.
- A new 6% rate of stamp duty will apply to transfers of residential properties valued at more than €1.5m. Such transfers will continue to be subject to stamp duty at a rate of 1% on the consideration up to €1m, 2% on the consideration between €1m to €1.5m and a new 6% rate on any consideration in excess of €1.5m. It appears that this will apply to both individual properties above this value and on purchases of multiple residential properties which in aggregate exceed this value (and which are not caught by the bulk purchase 15% rate).
- There was speculation earlier in the year that the Residential Zoned Land Tax would be further deferred but this will come into force from 1 February 2025. However, Government has made changes in response to concerns raised in relation to zoned land that is actively farmed. Landowners will be able to seek to have their land re-zoned to reflect the economic activity that is currently undertaken on the land, which can take them outside the scope of the tax. In addition, legislation will be introduced to allow for exemption during any Judicial Review Proceedings brought by a third party.
Other relevant measures
Other measures announced which may be of relevance include:
- VAT threshold increase
- VAT registration thresholds will increase to €42,500 (currently €40,000) for services and €85,000 (currently €80,000) for goods.
- Bank Levy extension
- The Bank Levy will be extended for a further year to 2025.
- Financial Services
- Other than the Bank Levy, no specific changes were announced in relation to the financial services sector. While the Minister noted he had recently received the Funds 2030 Report commissioned last year, it seems unlikely that there will be any measures taken this year to address tax issues raised by stakeholders in their submissions to this Department of Finance consultation on Ireland’s funds sector which was undertaken in 2023.
- Sporting and charitable reliefs
- Changes will be made to the tax exemptions that apply to sporting bodies to facilitate long term investments for the purposes of future capital projects, sport equipment needs, to support high performance athletes and sports participation.
- Both PAYE and self-assessed donors will able to choose for the income tax relief on donations to sports bodies to go either to themselves or to the sporting body itself.
- Charities will no longer have to have been established for at least two years to access the charitable donations scheme under which they can claim refunds of tax in respect of donations received and will have a longer timeframe from the date of a donation to use the funds raised under the scheme.
If you would like to discuss how any of these changes may affect your business, please contact any member of the A&L Goodbody's Tax team.
Date published: 1 October 2024
