On 10 May 2011, Minister Noonan presented the Jobs Initiative, which is intended to assist in employment generation and is part of a strategy to “kick-start economic activity”. It is expected that this Initiative will be budget neutral over the period to 2014. Some of the key tax aspects of the Initiative are set out below.
Corporate tax rate
The Minister for Finance has emphasised that the government is committed to its policy approach on the corporate tax rate and has reiterated that the 12.5% rate of corporation tax is here to stay. It is central to Ireland’s industrial policy and forms an integral part of Ireland’s international brand.
R&D tax credit
The R&D tax credit legislation is to be amended to enhance the flexibility for companies in how they account for the credit. No further details were provided in the Minister’s speech. However, it does not appear that the 2003 base year reference will be removed, despite much speculation that this would be the case.
Employer’s PRSI on share based remuneration
The employer’s PRSI on share based remuneration is to be abolished with effect from 1 January 2011, which was the original start date for the new provisions. This provision will benefit many companies, particularly multinational employers, where share based remuneration is common.
VAT changes
The reduced rate of VAT of 13.5% is to be decreased to 9% for services relating to tourism. This temporary second reduced rate of VAT will be introduced with effect from 1 July 2011 and is due to remain in place until 31 December 2013. The 9% VAT rate will apply mainly to:
- restaurant and catering services;
- hotel and holiday accommodation;
- various entertainment services such as admission to cinemas, theatres, museums, fairgrounds, amusement parks and sporting facilities;
- hairdressing; and
- printed matter such as brochures, maps, programmes and newspapers.
The objective of the VAT rate reduction is to boost tourism and stimulate employment. The impact of the changes will be reassessed at the end of 2012.
It is important to note that the 13.5% VAT rate continues to apply to construction related services.
Air travel tax
The air travel tax rate is to be reduced to zero on a date to be fixed by Order. Similar to the VAT reduction above, the effectiveness of this measure will be reviewed by the end of 2012 and if unsuccessful, the air travel tax will be reinstated.
Employer’s PRSI
The lower rate of employer’s PRSI is to be reduced by 50% until the end of 2013 in respect of jobs paying up to €356 per week. This measure will take effect from 1 July 2011 and will reduce the cost burden for many businesses.
Pension levy
A levy of 0.6% of the capital value of assets under management in pension funds established in the State is to be introduced. This will apply for a period of four years commencing in 2011. The levy will not apply to pension funds established here where services and benefits are provided solely to non-resident employers and members.