Tax Developments Promoting Growth of Indigenous Business and - PowerPoint PPT Presentation

Tax Developments Promoting Growth of Indigenous Business and Attracting Foreign Direct Investment Mark Barrett

Overview Part 1: Tax Developments Promoting Growth for Indigenous Business Part 2: Tax Developments Attracting Foreign Direct Investment

Part 1 Tax Developments Promoting Growth for Indigenous Business

Tax Developments for Indigenous Business • Corporation Tax Exemption for Start-up Companies • Understanding Tax for New & Back to Work Hires • The Employment and Investment Incentive Scheme (EIIS) – Raising Tax Efficient Finance • VAT – the Essential Update

Corporation Tax Exemption for Start-up Companies • Exemption from Corporation Tax for Start Up companies • First introduced in 2009: • Originally: • New Company • Relief for Profits/Gains of New Trade, • Full relief where € 40,000 or less • Marginal relief re: profits € 40,001 to € 60,000 • No relief where profits exceed € 60,000 • Available for first 3 years.

Corporation Tax Exemption for Start-up Companies • In 2011 the Relief was amended to link to levels of employment: • For accounting periods beginning on or after 1 January 2011: • Relief linked to level of Employer‟s PRSI • To max of € 5,000 per employee • Cap of € 40,000 overall • Extended in 2010, 2011 and 2012, • FA2012: Now for companies that commence to trade in 2012, 2013 or 2014

Corporation Tax Exemption for Start-up Companies • Exemption from Preliminary Tax • New or Start-up Company • CT liability of € 200,000 or less • For their first accounting period • Not required to pay PT for that first accounting period • Pay final CT liability when submit CT return

Understanding Tax for New & Back to Work Hires Revenue Job Assist Incentives for Employers - IT59 • Double Wages deduction for up to 3 years • Wages • Employer‟s PRSI • Employee criteria • Unemployed for 12 months immediately before hiring • During 12 months in receipt of certain benefits from DSP, including jobseeker‟s benefit/allowance, etc. or “signing on”, or certain schemes including Job Bridge, FAS training courses, Community Employment Scheme • Qualifying Jobs: • Minimum 30 hours per week • Capable of lasting at least 12 months • Exceptions: commission only / grant aided / previous employees unfairly dismissed / redundancies w/in previous 26 weeks / proprietary director or spouse/civil partner

Understanding Tax for New & Back to Work Hires Example from Revenue IT59: The saving to a sole trader under the Revenue Job Assist scheme, liable to income tax at 41%, employing a qualifying employee in a qualifying employment on a salary of € 30,000 is as follows: Double PRSI deduction Saving@ Year Salary Total 10.75% allowable 41% in accounts € 30,000 € 3,225 € 33,225 € 66,450 € 27,244.50 1 € 30,000 € 3,225 € 33,225 € 66,450 € 27,244.50 2 € 30,000 € 3,225 € 33,225 € 66,450 € 27,244.50 3 € 81,733.50 Total In addition: employer may qualify for Employer Job (PRSI) scheme (no employer‟s PRSI for the first 18 months)

Understanding Tax for New & Back to Work Hires Revenue Job Assist (Long Term Unemployed taking up a Job) Incentives for Employees - IT58 • Additional allowance for employees • The relief in the first year of employment is € 3,810 plus € 1,270 for each child • Reducing to two-thirds of that amount in Year 2 and one-third in Year 3 • Criteria (as for employer): Continuously unemployed for at least 12 months, and either, • In receipt of Jobseekers Allowance, Jobseekers Benefit, One Parent Family Payment, Blind Persons Pension, Disability Allowance or, • With effect from the 01/01/06 Invalidity Pension for at least 12 months or Illness Benefit for at least 36 months

The Employment and Investment Incentive Scheme (EIIS) Introduction: • The EIIS is a tax incentive scheme. Investors who purchase eligible shares in a qualifying company will be granted tax relief, thereby reducing the cost of their investment • The EIIS is designed to promote investment in Irish companies and to foster job creation • The EIIS provides an excellent opportunity for companies to raise capital • EIIS replaced the BES (overlap between the two schemes)

EIIS Facts for Investors: • Qualifying Individual: • Irish tax-resident individual • Not connected with the Company at any time during the specified period (starting two years before and ending three years after share issue) • Relief of up to 41% of the investment: • 30% initial relief in year 1 (specified relief) • 11% contingent relief in year 4, if Company has increased either employee numbers (and no reduction in average pay) or its R&D expenditure (not a specified relief)

EIIS • Holding period: 3 years (BES was 5 years) • Investment: Minimum € 250, Maximum € 150,000 pa • Capital Gains Tax: • Where the shares are disposed of, the full acquisition cost can be deducted from the proceeds in an arms length sale • However, if the shares are disposed of at a loss, the allowable loss for Capital Gains Tax purposes will be reduced by the relief granted • Tax avoidance: • Relief is not available unless shares are subscribed for and issued for bona fide commercial purposes and not as part of a scheme or arrangement the main purpose of which is the avoidance of tax • Investment in shares which are subject to agreement, options or guarantees which provides for the disposal by investors at a price other than market value do not qualify for relief

EIIS • Qualifying Company: • Company size criteria (see next slide) • Investment raised for purposes of carrying on Relevant Trading Activities; or R&D • Relevant Trading Activities • Broadly defined – will include most trades • Excludes: Financing Activities, Dealing in commodities, shares etc. • Trading / Commence to trade w/in 2 years of share issue • Green Energy Companies: Application for „grid connection agreement‟ deemed to amount to commencing relevant trading activities • R&D Activities: • Expend at least 30% of investment on R&D activities.

EIIS The company must be a Micro or Small enterprise or be a Medium sized enterprise which is located in an „Assisted Area‟ Size: Small Company Medium Company Employee Limit 50 Employees 250 Employees € 10m Turnover / € 10m € 50m Turnover / € 50m Balance Financial Limit Balance Sheet Sheet Located in „Assisted Area‟ Additional N/A Requirement Or „Not beyond start - up stage‟ “Assisted Area”: In summary „assisted areas‟ have been described as all areas in the State with the exception of counties Dublin, Meath, Kildare Wicklow and Cork (but including the Cork Docklands) “Not beyond start - up stage”: “Start - up stage” is not defined in the ‟Community Guidelines on State Aid to Promote Risk Capital investments in Small and Medium- Sized Enterprises‟. However the phrase „start - up capital‟ is defined as meaning “financing provided to companies, which have not sold their product or service commercially and are not yet generating a profit, for product development and initial marketing”

Comparison of the BES and EIIS BES EIIS € 150,000 pa € 150,000 pa Qualifying investment Relief 41% in year of 30% in year of investment investment 11% contingent, year 4 Specified relief yes 30% - yes 11% - no Holding period 5 years 3 years € 1.5m pa € 2.5m pa Funds company can € 2m total. € 10m total. raise Qualifying companies Limited: Manufacturing Much Broader: Companies containing „Relevant Trading and international Activities‟ with special traded services provisions for R&D and Green Energy companies

Feedback to date • Three year period too short • Impact of High Earners Restriction • Exclusion of Medium Sized companies/foreign owned companies

VAT – the Essential Update FA 2012: • Standard rate increased to 23% from 1 January 2012 • Reverse charge on supplies of construction services, in the State, between connected parties • Travel agents margin scheme – removal of provision allowing for issuing of a document re VAT on qualifying accommodation at qualifying conference

VAT – the Essential Update FA 2012: • Duty to keep records – 6 years for liquidated companies • Second reduced rate of 9% - re: Admission to Heritage Facilities, Open Farms (previously exempt lettings), District Heating • „Bread‟ – new definition • Refund orders – Suite of measures to prevent abuse of refund orders: assessment of tax due , interest payable, fixed penalty € 4,000

Part 2 Tax Developments Attracting Foreign Direct Investment

Tax Developments & FDI • FED in 2012 – What You Need to Know • R&D Tax Credits – The Essentials

FED in 2012 – What You Need to Know • Foreign Earnings Deduction (FA2012) • To encourage Irish businesses to seek opportunities in the dynamic BRICS economies (Brazil, Russia, India, China and South Africa) • Deduction allowed against employment income of employees who perform their duties in BRICS countries • FED does not extend to remuneration in the form of BIK or termination payments • Deduction is for purposes of income tax only, (not PRSI or USC). Max value: € 14,350 • Maximum deduction € 35,000 • FED is a „specified relief‟ for the high earners restriction