knowledge | 14 October 2021 |
Budget 2022: Summary of Key Taxation Measures
Budget 2022 was announced by the Minister for Finance, Paschal Donohoe T.D. and the Minister for Public Expenditure, Michael McGrath T.D. on 12 October 2021. The Budget announcement was framed both optimistically, in terms of strong economic recovery from the impact of COVID-19 pandemic, and cautiously in the context of high levels of debt and the rising cost of living. Budget 2022’s stated aim is to invest in Ireland’s future and meet the needs of today, while putting the public finances on a sustainable path.
We have set out below some of the key taxation measures introduced by Budget 2022.
Measures to support enterprise and SMEs
The Employment Wage Subsidy Scheme will be extended until April 2022, at an estimated cost of up to €1.26 billion to the Exchequer.
The Employment and Investment Incentive Scheme, which provides income tax relief on investments made into qualifying early stage companies, will be extended to 2024. The scheme will also be opened to a wider range of investors.
In last year’s Budget, the Government committed a €30 million investment to the development of the Innovation Equity Fund through the Ireland Strategic Investment Fund. Budget 2022 commits a further €30 million investment through Enterprise Ireland. This will be matched by the European Investment Fund, subject to board approval. As a result, up to €90 million in potential investments will be available through the Innovation Equity Fund for predominantly seed stage Irish SMEs when it launches in early 2022.
The existing corporation tax relief for certain start-up companies will be extended to 31 December 2026, and will be available for the first five years (rather than three years) of trading.
The tax debt warehousing scheme will be expanded to allow self-assessed income taxpayers with employment income who have a material interest in their employer company to warehouse income tax liabilities relating to their Schedule E income from that employer company.
The VAT rate of 9% for the hospitality and tourism sector, which was introduced in November 2020 will be extended until 30 August 2022.
Corporation tax measures
A new tax credit for digital gaming companies will be introduced. This will provide a refundable corporation tax credit for expenditure incurred on the design, production and testing of a game at a rate of 32% on eligible expenditure of up to a maximum limit of €25 million per project (subject to a per project minimum spend requirement of €100,000). The gaming industry is estimated to be worth over €100 billion globally and it is hoped that this new tax credit will promote Ireland as a global hub in the digital gaming sector.
Ireland will complete transposition of the Anti-Tax Avoidance Directive through the introduction of two new measures; interest limitation rules, which will limit deductible interest expenses of 30% of EBITDA, and anti-reverse-hybrid rules. These rules will bring certain tax transparent entities (such as partnerships) within the Irish tax net where the entity is at least 50% owned/controlled by non-resident entities that regard it as tax opaque and, as a result of this, double non-taxation occurs.
Future taxation measures
Given Ireland’s well-established 12.5% corporate tax rate, one of the biggest stories in recent weeks has been the Government’s agreement to the long-negotiated OECD proposals for a global minimum effective tax rate of 15% for certain multinationals. An agreed guarantee that Ireland can continue to offer the 12.5% corporation tax rate for businesses with revenues less than €750 million is an important achievement for Ireland. This means that there will be no change in the corporation tax rate for 160,000 businesses in Ireland employing 1.8 million people. It is anticipated that the new 15% corporation tax rate, which will apply to businesses with revenues in excess of €750 million, will come into effect in 2023.
A new zoned land tax at an initial rate of 3% of market value will be introduced to encourage development of land for building homes, reflecting the Government’s ‘Housing for All’ strategy which targets the development of 33,000 new homes each year to 2030. The tax will apply on lands zoned suitable for residential development that is serviced, but has not yet been developed. This will be introduced on a phased basis with a two-year lead in time for land zoned before January 2022, and a three-year lead-in time for land zoned after January 2022.
The optimistic yet cautious tone of Budget 2022 sits in stark contrast to Budget 2021 which was shaped by the dual risks posed by COVID-19 and Brexit. While the Irish economy is quickly gaining momentum as restrictions ease, there is unsurprisingly a significant Exchequer deficit directly related to the pandemic. The Government’s strategy over the next two budgets will be to restore public services and phase out temporary COVID-19 related spending while also fixing public finances. It is hoped that this strategy strikes the appropriate balance between tapering supports and investing in the domestic economy.
Further detail on the measures announced in Budget 2022 will be contained in Finance Bill 2021, to be published on 21 October 2021.
Also contributed by Sinead Mooney and Emma McDonnell.
This document has been prepared by McCann FitzGerald LLP for general guidance only and should not be regarded as a substitute for professional advice. Such advice should always be taken before acting on any of the matters discussed.