Summary of Budget 2020

Minister for Finance, Paschal Donohoe, today announced his Budget for 2020 in what may well be the final Budget of the current government. With the ongoing uncertainty about Brexit it was widely expected to be a neutral Budget, with the Government being prudent with the country's finances in the event that there is no no-deal Brexit.
It was expected that this Budget would include a carbon tax be more focused on families, including investment into GP services and dentist services for children, along with some investment into education.
 
Income Tax
The following changes to Income Tax will apply from 1 January 2020
  •  An increase in the Home Carer Tax Credit from €1,500 to €1,600
  •  An increase in the Earned Income Credit from €1,350 to €1,500
USC
The reduced rate of USC for medical card holders is being extended for a further year.

 
Measures to Support Enterprise

Key Employee Engagement Programme (KEEP)
An incentive to facilitate the use of share-based remuneration by unquoted SME companies to attract key employees. Gains arising to employees on the exercise of KEEP share options are liable to Capital Gains Tax on disposal of the shares, in place of a liability to income tax, USC and PRSI on exercise. This incentive is available for qualifying share options granted between 1 January 2018 and 31 December 2023.

The Scheme is being amended as follows:
  • Definitions within the legislation relating to a qualifying companies and holding companies are to be amended so as to allow companies who operate through a group structure to qualify for KEEP.
  • Definitions within the legislation relating to the conditions for a qualifying employee are to be amended to allow for part-time/flexible working and movement within group structures (as business needs dictate).
  • The legislation is to be amended to allow existing shares to qualify for KEEP.
Employment and Investment (EII)
Provides individual investors with tax relief for risk capital investments in qualifying SMEs. A range of proposals are being brought forward to enhance the scheme including a number of technical adjustments to improve its operation. The main changes are as follows:
  • The level of relief: full income tax relief (40%) to be provided in the year in which the investment is made. This compares with current arrangements where 30% relief is provided upon the initial investment and a further 10% is given after Year 3 subject to certain conditions;
  • The investment limit: the annual investment limit will be increased from €150k to €250K and to €500k in the case of those who invest for a minimum period of 10 years.
Special Assignee Relief Programme
SARP is an income tax relief measure which aims to reduce the cost to employers of assigning skilled individuals in their companies from abroad to take up positions in their Irish based operations, thereby facilitating the creation of jobs and the development/expansion of business. Existing SARP legislation had a sunset clause of 31 December 2020. It is proposed to extend the scheme until 31 December 2022 (three years 2020-2022).


Foreign Earnings Deduction
FED is intended to support Irish companies who endeavour to expand their exports into new markets. It provides relief from income tax on up to €35,000 of salary for employees who travel out of State to certain qualifying countries for extended periods on behalf of their employer. Existing FED legislation had a sunset clause of 31 December 2020. It is proposed to extend the scheme until 31 December 2022 (three years 2020-2022).
 
Research & Development Tax Credit
The R&D credit is being amended for micro and small companies to increase the 25% R&D credit to 30% and to enhance the existing limits on the payable credit. A new provision is being introduced to allow micro and small companies conducting pre-trading R&D to claim the credit before trading commences, limited to offset against VAT and payroll tax liabilities only. These measures for micro and small companies are both subject to State aid approval. In respect of all claimants, the current limit on outsourcing to third level institutes of education will be increased from 5% to 15%.

 
Microbrewery relief
Production ceiling for qualification raised from 40,000hl to 50,000hl.

Diesel Rebate Scheme
Relief for users of the scheme from increase in carbon tax.

 
Extension of Section 604B Capital Gains Tax Relief for Farm Restructuring
The current scheme provides for capital gains tax relief where an individual disposes of and purchases land and/or exchanges land with another farmer in order to consolidate an existing farm. The scheme which is due to expire on 31 December 2019 is being extended to 31 December 2022 subject to state aid approval.


Housing
 
Help to Buy (HTB)
HTB is an income tax incentive measure designed to assist first-time buyers with the deposit required to purchase or self-build a new house or apartment to live in as their home; extended until 31 December 2021.

 
Living City Initiative
LCI is a scheme of property tax incentives aimed at the regeneration of certain 'Special Regeneration Areas' in the historic centres of Cork, Dublin, Galway, Kilkenny, Limerick and Waterford; extended until 31 December 2022.


 
Climate and Environmental Measures

Carbon Tax
Increase the rate to 26 euro per tonne.

 
Electricity Tax
Equalise the rate for businesses with that of non-business.

 
Vehicle registration Tax
VRT Environmental Health (NOx) Surcharge.
Extension of VRT relief for hybrids and plug-in hybrid electric vehicles.
 

Anti-Avoidance

Irish Real Estate Funds (IREFs) and Section 110 Companies
Following analysis of the first sets of financial statements filed by Irish Real Estate Funds (IREFs), Revenue have identified aggressive activities by some IREFs including the use of excessive interest charges to avoid the payment of tax in respect of profits from Irish property. A number of anti-avoidance measures are being introduced to address these issues, including the introduction of limitations on interest expenses based on debt to property cost and on an income to interest ratio. These measures will be brought in via Financial Resolution on Budget night.
Anti-avoidance provisions in section 110 TCA 1997 are also being strengthened to ensure that they operate as intended. These changes will be brought in as part of Finance Bill 2019.

 
Real Estate Investment Trust companies (REITs)
A number of amendments are being made to the REIT framework to ensure that the appropriate level of tax is being collected from the regime, particularly in the area of capital gains. The distribution of proceeds from the disposal of a rental property will be subject to dividend withholding tax upon distribution. An existing provision whereby a deemed disposal and re-basing of property values occurs should a company cease to be a REIT is being limited to apply only where the REIT has been in operation for a minimum of 15 years, in line with the original policy intention of encouraging stable long-term investment in the rental property market. These changes will be brought in via Financial Resolution on budget night.

 
Corporation Tax – BEPS Implementation
As part of Ireland’s commitment to implementing the Anti-Tax Avoidance Directive, the Bill will provide for new ATAD compliant anti-hybrid rules to apply to all corporate taxpayers from 1 January 2020. The purpose of anti-hybrid rules is to prevent arrangements that exploit differences in the tax treatment of an instrument or entity under the tax laws of two or more jurisdictions to generate a tax advantage. Consequential provisions are also being introduced to ensure that the existing treatment of Stocklending and Repo transactions, and of Investment Limited Partnerships, is clear in legislation.
Transfer pricing rules are being modernised in line with the Recommendations in the Coffey Review of the Irish Corporation Tax Code. These changes include the incorporation the OECD 2017 Transfer Pricing Guidelines into Irish legislation and the extension of rules to cover cross-border non-trading, and material capital transactions. The legislation will also extend the application of transfer pricing rules to SMEs, subject to a Ministerial Commencement Order.

 
Stamp Duty on Schemes of Arrangement involving a ‘Cancellation Scheme’ where used for the sale of a Company
An amendment is being made to the Stamp Duties Consolidation Act 1999 to provide that a stamp duty charge of 1% is applicable where a scheme of arrangement, in accordance with Part 9 of the Companies Act 2014, is used for the acquisition of a company. It has been established that in certain circumstances where a company is restructured in accordance with a scheme of arrangement under Chapter 1 of Part 9 of the Companies Act, no stamp duty applies. Under such arrangements the company being acquired would cancel its existing shares and re-issue new shares to the acquiring company. In such a situation stamp duty would not apply as there is no transfer or conveyance on sale of shares. This measure aims to correct that anomaly. This will made subject to a Financial Resolution so as to have immediate effect tonight. As this is a transactional measure it is difficult to establish a basis to estimate yield.


 
Additional Taxation Measures

Tobacco Products Tax
Increase of 50c on pack of 20 cigarettes with pro-rata increase on other tobacco products.

 
Capital Acquisitions Tax
The current Group A tax free threshold which applies primarily to gifts and inheritances from parents to their children is being increased from €320,000 to €335,000. This increase applies in respect of gifts or inheritances received on or after the 9th of October.

 
Increase in Stamp Duty on non-Residential Property
The rate of stamp duty applicable to non-residential property transactions will be raised from 6% to 7.5% from Budget night.
This will be subject to transitional arrangements whereby the existing 6% rate will apply to instruments executed before 1 January 2020 where a binding contract existed prior to Budget day (8th October 2019).
Consequential amendments will also be made to the legislation relating to the repayment of stamp duty where the land involved is subsequently used for residential development, so as to ensure that the rate of stamp duty chargeable after a full refund remains at 2%.

 
Amendment to section 126AA of SDCA 1999 – Further Levy on Certain Financial Institutions (Bank Levy)
It will be necessary to amend Section 126AA of the Stamp Duties Consolidation Act 1999 in order to increase the rate of the "Bank Levy" from 59% of DIRT in base year 2015 to 170% of DIRT for base year 2017 in order to protect the €150m yield in 2019 and 2020.
When the Financial Institutions ("Bank") Levy was introduced in 2016, with the purpose of enabling the banking sector to contribute to economic recovery, it was decided that the yield from the levy would be constant every year irrespective of which base year applied. Therefore, it is necessary to change the rate whenever the base year changes.
This will be made subject to a Financial Resolution so as to ensure sufficient time for the banks to pay their portion of the levy in 2019. No additional revenue arises, as this is a revenue protecting measure.


 
Compliance
Increase rate of Dividend Withholding Tax from 20% to 25% from 1 January 2020.