Minister Paschal Donohoe today published Finance Bill 2018, which provides the legislative basis for measures announced last week on Budget Day, as well as introducing new previously unannounced measures.
Among the more interesting measures included in Finance Bill 2018, and not previously flagged, are:
Income tax
- “Rent-a-room” relief, which provides an exemption from income tax of up to €14,000 in a year in respect of room rental in a principal residence, will not now include short-term lettings. Lettings of less than 28 days will be regarded as short-term.
- In a very positive development, the existing EII and SURE schemes, which provide income tax relief for investments in certain corporate trades, have been simplified, with the existing legislation replaced. Companies can now self-certify their eligibility as a qualifying company, with the investor tax relief clawed back from the company as opposed to the investors if that self-certification was incorrect. In a similar manner, investors can also self-certify their eligibility, with any claw back in this scenario on the investor.
- The Bill introduces a new Start-up Capital Incentive (SCI) aimed at investments in early stage start-up ventures.
- There are various other amendments to the existing rules which will be outlined in a separate Grant Thornton release, to be finalised closer to enactment of the new provisions.
Corporate tax
- A technical amendment has been introduced in respect of the application of the 80% limit on the availability of intangible asset capital allowances under S.291A, on expenditure after 11 October 2017. This requires that income generated from such qualifying intangible assets acquired before and after 11 October 2017 is segregated into two separate income streams.
- As announced in the Budget, a new “exit tax” has been introduced. In the Budget speech, a rate of 12.5% was flagged as applying to companies which migrate tax residence from Ireland. However, where the migration is part of a transaction that involves the disposal of an asset, the 33% CGT rate will apply to the migration. Broadly, the only exception to an Irish tax charge on a migration is where the relevant assets remain within the Irish tax net post migration, for example through an Irish branch.
- Further anti-avoidance provisions are added to the legislation originally published on Budget day, and an instalment payment option has also been included to permit the tax to be paid over 5 years in the case of a migration to an EU/EEA State.
Controlled Foreign Corporation (CFC) Rules
- As identified in the Budget speech and in accordance with the requirements of the 2016 EU Anti-Tax Avoidance Directive, CFC rules will be introduced in Ireland, for accounting periods of Irish Controlling Companies beginning on or after 1 January 2019. This will result in the undistributed income of foreign low-taxed subsidiaries being taxed in Ireland as it arises, unless the subsidiary satisfies certain conditions. Very broadly, the new rules apply where the “controlling” Irish company has been carrying out “significant people functions” in Ireland in respect of the low taxed foreign subsidiary.
- The CFC legislation is detailed and significant. Grant Thornton is preparing a separate dedicated update in respect of both the CFC provisions and the new exit tax rules. Note also that new transfer pricing rules are expected next year, with restrictions on the deductibility of interest expected to follow soon after. With other significant changes on the horizon, the tax landscape for many Irish companies will be materially altered over the next couple of years.
