14/10/2015

1

Budget 2016 Briefing

Fergal Cahill

14/10/2015

2

Budget 2016 Newsletter – www.cahilltaxation.ie

Agenda

• Introduction

• Personal Taxes

• Business Taxes

• Capital Taxes

• Farmer Taxation

• VAT & Excise

• International Corporate Tax Regime

• Entrepreneurship Action Plan

• Conclusions

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Main Points

• Reform of USC & PRSI

• Focus on Lower and Middle Income Earners – reduction in

marginal rate

• Focus on Entrepreneurship

• Introduction of Earned Tax Credit for Self Employed

• Enhancement of International Tax Regime

• NAMA, housing, minimum wage etc

Economic Picture

• Forecast growth at 3.9% for 2015 – Actual growth expected to be

6.2%.

• Forecast growth at 4.3% in 2016.

• Forecast growth at 3% in subsequent years.

• Deficit Target 2.1% of GDP in 2015 (original target of 2.7%).

• Tax receipts €1.74bn ahead of schedule in first 9 months of 2015.

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Economic Picture

• Unemployment levels decreasing:

• Currently 9.4%

• Expected 8% in 2016 (high of 15% in 2012)

• Forecast of 6.25% by 2021.

• Debt levels still high but reducing:

• Current Debt/GDP ratio is 97% (off a high of 120% in 2012)

• Projected Debt/GDP ratio of 93% by end of 2016.

Government

Expenditure

€23

€1,410 €1,600€1,250

€700

-€420-€690

€4,051

€4,590

€2,200€2,250

€1,800

-€630-€770

-€1,800

-€800

€200

€1,200

€2,200

€3,200

€4,200

€5,200

€6,200

2010 2011 2012 2013 2014 2015 2016

Expenditure

Taxation

Billion

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Tax Revenue to

end-September 2015*

0 2 4 6 8 10 12 14

Other

Corporation Tax

Excise Duties

VAT

Income Taxes

2015 Outturn Profile

* Based on “Economic Outlook and Fiscal Developments in Ireland, published by the Department of Finance 13 October 2015

Customs & Excise

13%

Capital Gains Tax

7%

Capital Acquisition Tax

1%

Stamp Duties

8%

Income Tax

27%

Corporate Tax

14%

VAT

30%

Customs & Excise Capital Gains Tax Capital Acquisition Tax Stamp Duties Income Tax Corporate Tax VAT

Tax Mix 2006

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Tax Mix 2015

Customs & Excise Duty

12%Capital Gains Tax

1%

Capital Acquisition Tax

1%

Stamp Duties

3%

Income Tax

41%

Corporation Tax

14%

VAT

27%

Local Property Tax

1%

Customs & Excise Duty Capital Gains Tax Capital Acquisition Tax Stamp Duties

Income Tax Corporation Tax VAT Local Property Tax

• The top 1% pay 19% of all income tax and USC

• The bottom 76% pay 21% of all income tax and USC

• The top 9% pay 54% of all income tax and USC

Breakdown of Income Tax

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Net Income (Ireland vs U.K)

€ 14,372

€ 24,572

€ 38,172

€ 82,400

€14,790€25,157

€36,017

€72,518

€ -

€ 10,000

€ 20,000

€ 30,000

€ 40,000

€ 50,000

€ 60,000

€ 70,000

€ 80,000

€ 90,000

€15,000.00 €30,000.00 €50,000.00 €125,000.00

U.K 2015/16

Ireland 2016

CountryTop marginal income tax & employee social

security rate 2014

1 Portugal 61.23%

2 Slovenia 61.05%

3 Belgium 59.45%

4 Finland 57.21%

5 Sweden 56.86%

6 Denmark 56.22%

7 France 55.01%8 Netherlands 53.41%

9 Ireland 52.00%10 Spain 52.00%

11 Japan 51.09%

12 Austria 50.00%

13 Isreal 50.00%

14 Canada 49.53%

15 United States 48.60%

16 Italy 47.84%

17 Germany 47.48%18 Norway 47.20%

19 United Kingdom 47.00%

20 Australia 46.50%

OECD Average 46.3%

OECD Comparison of Marginal Tax Rates in 2014 for top 20 countries

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Country Marginal Threshold 2014

1 Switzerland €621,768

2 United States €30,172

3 Spain €300,000

4 Germany €250,7305 United Kingdom €186,077

6 Israel €171,038

7 Mexico €169,924

8 France €151,9569 Japan €128,287

10 Australia €122,291

31 Ireland €32,800

OECD Average €114,401

Entry Point to Marginal Rate in Competitor Countries

Kevin Lambe

14/10/2015

9

Personal Taxes

Personal Taxes

• Decreases in rates of USC

• Increases in USC entry level and bands

• Changes to self-employed tax credits

• Tapering relief introduced for PRSI

• No change in Income Tax rates and tax bands

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Earned Income Credit

• An earned income credit of €550 is being introduced for self-

employed taxpayers.

• Applicable to taxpayers earning self-employed trading or

professional income and to business owners who are ineligible

for a PAYE credit on their salary income.

• Further increases in the credit expected in the coming years.

The plan is to align credit with the employee tax credit

(currently €1,650).

Tax Bands

Taxpayer Tax Band

2015

Tax Band

2016

Difference

Single/Widowed €33,800 €33,800 € -

Married – One

Income

€42,800 €42,800 € -

Married – Two

Incomes

€67,600 €67,600 € -

Single Parent €37,800 €37,800 € -

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Tax Credits

Taxpayer Tax Credits

2015

Tax Credits

2016

Difference

Personal - Single €1,650 €1,650 -

Personal – Married €3,300 €3,300 -

Employee Credit €1,650 €1,650 -

Single Person Child

Carer

€1,650 €1,650 -

Home Carer €810 €1,000 €190

Age Credit – Single €245 €245 -

Earned Income

Credit

€ - €550 €550

PRSI

2015 2016

PRSI Rate 4% 4%

Self-Employed PRSI 4% 4%

Employer PRSI 10.75% 10.75%

Employer Lower Rate

PRSI

8.5% 8.5%

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PRSI

• Introduction of a PRSI relief of a maximum of €12 per week.

• Tapering relief for incomes between €352.01 per week and

€424 per week.

• Therefore, reduction in PRSI for employees earning between

€18,304 and €22,048.

Employee’s PRSI

Employer’s PRSI

• Increase from €356.01 to €376.01 in weekly threshold at which

liability to employer’s PRSI increases from 8.5% to 10.75%.

USC – PAYE earners

Pre-Budget 2016 Post-Budget 2016

Band Rate Band Rate

Income < €12,012 Exempt Income < €13,000 Exempt

First €12,012 1.5% First €12,012 1%

€12,013 - €17,576 3.5% €12,013 - €18,668 3%

€17,577 - €70,044 7% €18,669 - €70,044 5.5%

Balance 8% Balance 8%

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USC – Self-employed

Pre-Budget 2016 Post-Budget 2016

Band Rate Band Rate

Income < €12,012 Exempt Income < €13,000 Exempt

First €12,012 1.5% First €12,012 1%

€12,013 - €17,576 3.5% €12,013 - €18,668 3%

€17,577 - €70,044 7% €18,669 - €70,044 5.5%

€70,045 - €100k 8% €70,045 - €100k 8%

Balance 11% Balance 11%

Income Tax - Top Rate

2015 2016

Income Tax 40% 40%

PRSI 4% 4%

Universal Social Charge*

7% 5.5%

Total 51% 49.5%

*52% for individuals earning between €70,044.01 and €100,000.*55% for self-employed earning over €100,000 (USC 11%).

Income up to €70,044

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Annual Income

Net Wage 2015

Net Wage 2016

Difference

€13,000 €12,785 €12,850 €65

€18,000 €17,295 €17,400 €105

€20,000 €17,955 €18,448 €493

€22,000 €19,335 €19,525 €190

€35,000 €28,065 €28,442 €377

€75,000 €47,616 €48,518 €902

€150,000 €83,616 €84,518 €902

Single Person Employee

Married Couple – One Income Employee

Annual Income

Net Wage 2015

Net Wage 2016

Difference

€13,000 €12,785 €12,850 €65

€18,000 €17,595 €17,700 €105

€20,000 €18,655 €19,148 €493

€22,000 €20,435 €20,625 €190

€35,000 €29,955 €30,332 €377

€75,000 €51,066 €51,968 €902

€150,000 €87,066 €87,968 €902

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Married Couple – Two Incomes*

Annual Income

Net Wage 2015

Net Wage 2016

Difference

€13,000 €12,785 €12,850 €65

€18,000 €17,595 €17,700 €105

€20,000 €18,655 €19,148 €493

€22,000 €20,435 €20,625 €190

€35,000 €29,955 €30,332 €377

€75,000 €58,581 €59,409 €828

€150,000 €95,232 €97,036 €1,804

* Assumes both spouses earn same income

Single Person – Self Employed

Annual Income

Net Income2015

Net Income 2016

Difference

€13,000 €11,335 €11,950 €615

€18,000 €15,145 €15,800 €655

€20,000 €16,305 €17,007 €702

€22,000 €17,685 €18,417 €732

€35,000 €26,415 €27,342 €927

€75,000 €45,966 €47,418 €1,452

€150,000 €80,466 €81,918 €1,452

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When do we enter the tax doors

(Single Person)

Enter USC at €13,000

Enter Income Tax at €16,500

Enter PRSI at €18,305

Sinéad Dooley

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BusinessTaxes

EII Scheme

• Changes announced in Employment Investment Incentive in

Budget 2015 being commenced.

• The scheme is also being amended to include expansion works

on existing nursing homes.

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Reminder of 2015 Amendments

• Tax relief for investments companies that qualify for EII Relief (formerly BES

Relief).

• Limit increased to €5m per annum up to a maximum of €15m.

• Extension of EII relief to the management and operation of nursing homes

(for 3 years), medium sized companies in non-assisted areas and

internationally traded financial services.

• Hotels, guest house and self-catering accommodation will remain eligible

for 3 years.

EII Scheme

Corporation Tax

• The Start-Up relief from corporation tax for new companies has been

extended for the next 3 years.

• Cap on eligible expenditure for Film Relief is being increased to €70m.

• Review of Marine taxation measures published.

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Property

• No property measures of note

• Postponement of revaluation date for LPT from 2016 to 2019

• However, NAMA to deliver 20,000 houses between now and

2020

• That equates to 80 units per week

• Concentrated on great Dublin area (90%)

Other Taxes

• Scheme for capital allowances on the construction of Certain

Aviation Services facilities is being commenced.

• Home Renovation Incentive is being extended until 31

December 2016.

• Pension of 0.15% abolished from end of 2015

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Capital Taxes

Old Threshold

Threshold

Effective 14 October 2015

Group A €225,000 €280,000

Group B €30,150 €30,150

Group C €15,075 €15,075

CAT Rate 33% 33%

Capital Acquisitions Tax

* Note – changes to Section 86 Dwelling House Exemption expected in 2016

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Capital Gains Tax

• No change in the current standard rate of CGT of 33%.

• However, a new CGT Entrepreneur Relief is being introduced from 1

January 2016.

• A reduced rate of 20% will apply to the disposal in whole or in part

of a business up to an overall limit of €1m in chargeable gains.

• Details awaited in the Finance Bill.

Capital Gains Tax

CGT Entrepreneur Relief (ctd)

• How beneficial is this relief?

• Limit of €1m may be restrictive – Finance Bill awaited to determine

whether €1m available per spouse. Consider holding shares in other

family member’s names.

• Looks like it is similar to Retirement Relief (given lifetime threshold).

• We expect that the use of a holding company will still be prevalent

given exemptions from CGT under Section 626B – effective rate of

0% on capital gains albeit cash will be retained in company.

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2008 2016

CGT rate 20% 33%

CAT rate 20% 33%

Exemption from

parent to child€521,208 €280,000

CGT Retirement

Relief

Relief available for any

investor over age 55

Age cap reduces the

incentive to pass on

business after age 66

CGT/CAT Rate in Ireland

Farmer Taxation

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Tax Reliefs

• The following tax reliefs are being extended until 31 December

2018:

1. General Stock Relief

2. Stock Relief for Young Trained Farmers

3. Stock Relief for registered Farm Partnerships

4. Stamp Duty exemption for Young Trained Farmers

• Profits or gains from the occupation of woodlands are being

removed from the High Earners Restriction.

Farm Succession

• A new farm succession transfer partnership model is being

introduced subject to EU State Aid approval.

• The new model will allow 2 people to enter into a partnership

with the aim of transferring the farm to the younger farmer at the

end of a specified period (not exceeding 10 years).

• An income tax credit worth up to €5,000 per annum for 5 years

will be allocated to the partnership and spilt in accordance with

profit sharing agreement.

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Farm Succession

• The idea is to facilitate knowledge transfer and a gradual transfer

of control.

• This is an interesting idea and should make it more attractive to

facilitate an early transfer but ensuring that the parent retains a

role in the farm and an income from the farm in retirement.

• Subject to EU approval and details awaited in the Finance Bill.

Indirect Taxes

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VAT

• No change in rates

• Low rate of 9% for tourism sector retained

• Minister did make the point that hotels in Dublin are

performing well and benefit not being passed on to

consumer.

• Report on VAT burden on charities published.

Excise

• Increase of 50 cents on pack of 20 cigarettes.

• Relief from excise duty for beer produced by microbreweries now

available upfront as well as through a rebate.

• Motor tax is being reduced for all vehicles above 4,000kgs. New

rates as follows:

• €500 for vehicles between 4,000kgs and 12,000kgs

• €900 for vehicles over €12,000kgs

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Stamp Duty

• Abolish the current €2.50/€5 per annum charge on ATM cards and

combined (ATM & debit) cards from 1 January 2016.

• Introduce a new 12c ATM withdrawal fee from 1 January 2016,

which would be capped at €2.50/€5 per annum per card.

Fergal Cahill

14/10/2015

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Corporate Tax Regime

Ireland’s Corporate

Tax Regime

• The Minister used the Budget as an opportunity to provide an

update on Ireland’s International Tax Strategy.

• Maintenance of 12.5% rate remains the corner stone of Ireland’s

corporate tax strategy.

• Developments since October 2014 include 3 additional Double

Taxation Agreements, 3 new Tax Information Exchange

Agreements and actively participating in the OECD’s BEPS project.

• Introduction of a Knowledge Development Box in Finance Bill

2015.

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Base Erosion and

Profit Shifting

• Ireland has had “bad press” internationally

on its tax regime e.g. double Irish.

• However, this view is changing:

• “Ireland has been staying the course and it is

making the necessary modification and the

adjustments and I’m very happy, very proud

to say Ireland has been a strong and very

exemplary case of adapting and adopting.”

– Ángel Gurría, Secretary General of the OECD, speaking about Ireland and the OECD BEPS process.

Base Erosion and

Profit Shifting

• Ireland will implement in full

the BEPS recommendations.

• FB 2015 will legislate for

country-by-country

reporting.

• Further OECD

recommendations will likely

be fully implemented by

Ireland.

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Knowledge

Development Box

• This measure will provide a

6.25% Corporation Tax rate on

profits arising to certain patents

and copyrighted software.

• The profits must be the result of

qualifying R&D carried out in

Ireland.

• Full details awaited in the FB

2015.

Tax and Entrepreneurship

Review

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Tax & Entrepreneurship

Review

• Review into tax and entrepreneurs published

• Aim: to examine the effectiveness of the tax system in

encouraging entrepreneurship.

• Disparities in tax system between the taxation of PAYE workers and

self-employed.

• Minister said last year that some of these changes could no longer

be justified.

Salary level Employee Self-EmployedExtra tax paid by

Self-Employed

€50,000 29.20% 32.50% €1,650

€100,000 40.40% 42.00% €1,650

Above €100,000 the extra 3% USC rate kicks in for self-employed

€110,000 41.40% 43.20% €1,950

€120,000 42.30% 44.20% €2,250

€130,000 43.10% 45.00% €2,550

€140,000 43.70% 45.70% €2,850

Effective Tax Rates (2015)

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€1,650.00

€1,650.00

€1,650.00

€1,650.00

€1,650.00

€1,650.00

€1,950.00

€2,250.00

€2,550.00

€2,850.000%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

Effective tax rate for Employee Effective tax rate for Self-Employed

Tax difference

YearNo. of new businesses

in IrelandNo. of new businesses

started in UK

2011 24,000 440,600

2012 19,000 484,224

2013 32,000 526,447

2014 Not available 581,173

Entrepreneurs (Ireland vs. U.K)

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Irish resident Investor UK resident Investor

Marginal tax rate on interest/dividend

income51%/55% 45%/30.56%

Tax rate on exit after 5 years

33% 10%

Irish v UK Comparison for Investors

Irish Tax System - 2014

Investing in

Property

Investing in a business

VS.

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Irish Tax System - 2014

Investing in

Property

Investing in a business

VS.

Property Business

Initial Cost (2014) €1m €1m

Sale (2021) €2m €2.4m

Gain €1m €1.4m

Tax on Gain €- €462,000

Net Gain €1m €938,000

Property (more than

in any other country)

55%

Business/

entrepreneurial

interests

2%

Cash

18%

Investments

16%

Tangible assets,

collectables, other

9%

Wealth invested in Ireland

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Capital Gains Tax

• A new CGT Entrepreneur Relief is being introduced from 1 January

2016.

• A reduced rate of 20% will apply to the disposal in whole or in part

of a business up to an overall limit of €1m in chargeable gains.

• Details awaited in the Finance Bill.

• How effective will this relief be in practice?

Personal Ownership

• Income Tax at 49.5%

to 52% on dividends

• CGT at 20% (33% if

gain > €1m)

Structuring Business Start-ups

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Corporate Ownership

• Corporation Tax at 0% on

dividends from business

• CGT at 0% on sale due to

Section 626B relief

• Extraction?

“HoldCo”

Structuring Business Start-ups

Tax Rates

“Bad

Rates”

“Good

Rates”

55% 52% 51% 49.5% 41% 40% 33%

25% 20% 19% 12.5% 3.3% 0%

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Earned Income Credit

• An earned income credit of €550 is being introduced for self-

employed taxpayers.

• Applicable to taxpayers earning self-employed trading or

professional income and to business owners who are ineligible

for a PAYE credit on their salary income.

• Further increases in the credit expected in the coming years.

The plan is to align credit with the employee tax credit

(currently €1,650).

Revenue Commissioners

• The Revenue Commissioners have received new funding for

increased audit and investigation activities – more interventions

and earlier

• Also, new debt analysis tool to reduce tax arrears

• Increased intervention in the area of R&D Credits – emphasis on

maintaining the integrity of the R&D credit system

• Other business sectors targeted in 2016

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Employers

• Small relief on Employer’s PRSI – ceiling to high rate

increased

• Increase in minimum wage from €8.65 to €9.15 – following

the recommendation of the Low Pay Commission

• Particular impact on the tourism and hospitality sectors

• Increasing pressures on wages in improving economic

conditions e.g. Lidl concept of “living wage” of €11.50

• However, retention of 9% VAT rate positive

Conclusions

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Conclusions

On the positive side:

• Much needed reform on USC & PRSI

• Reduction in marginal rate of tax for middle income earners to

49.5% very positive

• Taxation reform for self-employed welcome – a lot more to do

though. Tax credit for farm succession plans very innovative.

• Knowledge Box – should make Ireland attractive for FDI

Conclusions

On the negative side:

• Capital Acquisitions Tax rate of 33% - too high

• Capital Gains Tax rate of 33% - too high

• CGT Entrepreneur Relief – may be of limited benefit, difficult to

plan when there is a cap (details awaited). They need to go

further given 10% rate in UK.

• Entry level to 49.5% still too low at €33,800

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Single Person Employee

Annual Income

Net Wage 2011

Net Wage 2016

Difference

€13,000 €12,681 €12,850 €169

€20,000 €18,045 €18,448 €403

€35,000 €27,933 €28,442 €509

€75,000 €47,133 €48,518 €1,385

€150,000 €83,133 €84,518 €1,385

Married Couple – One Income

Annual Income

Net Wage 2011

Net Wage 2016

Difference

€13,000 €12,681 €12,850 €169

€20,000 €18,475 €19,148 €673

€35,000 €30,045 €30,332 €287

€75,000 €50,673 €51,968 €1,295

€150,000 €86,673 €87,968 €1,295

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Single Person – Self Employed

Annual Income

Net Income 2011

Net Income 2016

Difference

€13,000 €11,731 €11,950 €219

€20,000 €16,395 €17,007 €612

€35,000 €26,283 €27,342 €1,059

€75,000 €45,483 €47,418 €1,935

€150,000 €79,983 €81,918 €1,935

Thank You