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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
14/10/2015
3
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.
14/10/2015
4
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
14/10/2015
5
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
14/10/2015
6
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
14/10/2015
7
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
14/10/2015
8
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
14/10/2015
10
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 € -
14/10/2015
11
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%
14/10/2015
12
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%
14/10/2015
13
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
14/10/2015
14
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
14/10/2015
15
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
14/10/2015
16
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
14/10/2015
17
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.
14/10/2015
18
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.
14/10/2015
19
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
14/10/2015
20
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
14/10/2015
21
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.
14/10/2015
22
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
14/10/2015
23
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.
14/10/2015
24
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
14/10/2015
25
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
14/10/2015
26
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
27
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.
14/10/2015
28
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.
14/10/2015
29
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
14/10/2015
30
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)
14/10/2015
31
€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)
14/10/2015
32
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.
14/10/2015
33
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
14/10/2015
34
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
14/10/2015
35
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%
14/10/2015
36
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
14/10/2015
37
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
14/10/2015
38
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
14/10/2015
39
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
14/10/2015
40
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