|
Introduction/Context
| €million | |
| Current & Capital Expenditure Increase | 5,527 |
| Non-Core Funding including Ukraine and COVID-19 | 4,513 |
| Temporary Cost of Living/Business Supports/Energy Credits | 2,305 |
| Tax Measures (including Temporary measures) | 1,604 |
The Budget has been positioned as "setting out how we can help with the needs of today, but it also has to be about planning for the next 10, 20, 30 years."1
A key strand of the Government's fiscal strategy is to increase capital expenditure as set out in the National Development Plan.2 There will be a record €5.1 billion of capital investment in housing in 2024.3
The tax yield for the current fiscal year is expected to be €88.3 billion. Included in this amount are corporate tax receipts of €23.6 billion, representing a 4% increase relative to 2022. This rate of growth is significantly lower than the growth rate in recent years and is primarily attributable to a reduction in pharmaceutical exports following the end of the COVID-19 emergency. The tax yield in 2024 is projected to grow to €92.6 billion of which corporation tax is projected at €24.5 billion.
An inflation rate of 2.9% is expected in 2024 compared to the current rate of 5.3% for 2023.
Modified gross national income (GNI*), a deglobalized measure of national income, is projected to increase by 2% for both 2023 and 2024. A similar trend is expected with the level of modified domestic demand (MDD), which is projected to grow by 2.25%.
The key objective for the Budget is to support improvements in living standards while also "laying the foundations for sustainable growth — economically, fiscally, environmentally and socially - into the future."4
With the above in mind, the Budget provides for the introduction of two new sovereign funds:
- Future Ireland Fund — This fund is created to manage living standards and public services for current and future generations. The Minister announced that 0.8% of Gross Domestic Product (GDP) will be invested into this fund annually between 2024 — 2035. This fund has the potential to reach over €100 billion by the middle of the next decade.
- Infrastructure, Climate and Nature Fund — This fund is to help ensure sustained levels of investment in infrastructure in the event of economic downturns and to fund climate and nature related projects. This fund will grow incrementally by €2 billion plus interest accrued for seven consecutive years. By 2030, there will be €14 billion set aside for the purpose of this fund.
Detailed discussion
The text below highlights the key budgetary measures that are of relevance to international investors.
In setting tax policy, the Government's key objectives include supporting workers, promoting enterprise, supporting commitments on housing and to help households and businesses with the cost of living.
Pillar Two
Further to the feedback statements released in March5,6 and July7,8 of this year, the Irish Government has outlined its intention to publish implementing legislation in Finance (No. 2) Bill 2023 on 19 October.
Research and Development (R&D) tax credit
The R&D tax credit is a key incentive for companies performing innovation activities in Ireland. It is currently structured as a 25% refundable credit on qualifying expenditure net of grant assistance. The R&D tax credit is available in addition to the tax deduction for qualifying expenditure and is a qualifying refundable tax credit for Pillar Two purposes.
The Government has announced an increase in the R&D tax credit from 25% to 30%. EY had recommended this change in our response to consultations on the implementation of Pillar 2. In announcing this very welcome move, the Minister commented: "This will maintain the net value of the existing credit for those businesses subject to the new 15% minimum effective tax rate, while also delivering a real increase in the credit to those smaller companies who will not be in scope of Pillar Two."
Personal income tax changes
The Minister acknowledged that, without any amendments, the current personal income tax system could increase the burden of tax for rising incomes. To address this point, the Budget has provided for a number of changes resulting in reduced personal income taxes for most individuals.
Social Security
To address the long-term sustainability of the State pension system, the Government has decided to take a measured approach to increasing Pay Related Social Insurance (PRSI) contribution rates on a phased, incremental basis over a number of years.
An increase of 0.1% will take effect for both employer and employee contributions from 1 October 2024.
Territoriality/Participation Exemption
In his budget speech, the Minister referenced the recent public consultation that was opened to address the introduction of a dividend participation exemption.9 This consultation period will close on 13 December 2023. Please refer to our Tax Alert for further detail in this regard.10
Interest deductibility
The Minister has committed to engaging with stakeholders regarding a possible simplification of the current interest deductibility provisions set out in Irish tax legislation. The Minister also acknowledged that other aspects of tax legislation may be simplified, as well, following implementation of Pillar Two.
Capital Gains Tax (CGT) Angel Investor Relief
A new targeted CGT relief for individual angel investors in innovative start-up small and medium enterprises was announced. This relief will consist of a 16% rate of CGT (or 18% if invested through a partnership) on the disposal of qualifying investments (capped at twice the level of the investment).
The investment must be in the form of fully paid up newly issued shares of at least €10,000 and it must constitute between 5% - 49% of the ordinary share capital of the investee company. The scheme will include a certification process by Enterprise Ireland and will be subject to the EU General Block Exemption Regulation (GBER). A lifetime gains limit of €3 million will apply.
Share-based remuneration
It was announced that the Department of Finance will be launching a public consultation on share-based remuneration in recognition that this is a key element of remuneration that employers use to reward and retain employees. It is expected share options will be reviewed as part of the consultation to look at moving the taxation to the Pay As You Earn (PAYE) system.
For additional information with respect to this Alert, please contact the following:
Ernst & Young (Ireland), Dublin
- Joe Bollard
- Dan McSwiney
- Rory MacIver
- Brian Kelly
- Aoife Murray
- Cian O'Donovan
Ernst & Young (Ireland), Financial Services, Dublin
- Aidan Walsh
- Petrina Smyth
- Sandra Dawson
- Sinead Colreavy
Ernst & Young (Ireland), Cork
- Aileen Daly
Ernst & Young (Ireland), Limerick
- Billy McMahon
Ernst & Young (Ireland), Waterford
- Paul Fleming
Ernst & Young (Ireland), Galway
- Paraic Waters
Ernst & Young LLP (United States), Irish Tax Desk, New York
- Robert Dunne
- Simone Craven
Ernst & Young LLP (United States), Irish Tax Desk, San Jose
- Karl Doyle
Published by NTD’s Tax Technical Knowledge Services group; Carolyn Wright, legal editor
For a full listing of contacts and email addresses, please click on the Tax News Update: Global Edition (GTNU) version of this Alert.
