The Irish Finance Act 2012 has been enacted, giving effect to the measures contained in Finance Bill 2012. These measures further enhance Ireland's reputation as a location of choice for foreign direct investment with a modern 'business-friendly' infrastructure. The Government had previously strongly affirmed the 12.5% Corporation Tax Trading rate into the future.

Real Estate Tax Exemption

The recently enacted Irish Finance Act 2012 contains a significant Capital Gains Tax (CGT) incentive relating to the purchase by an Irish company or individual of any domestic or commercial property located within the EU/EEA. This new incentive will benefit not only domestic investors but will also attract international investors to Ireland, which already ranks as a world location of choice for business operations for its tax regime and ease of doing business.

Details of the Incentive

  • A special incentive CGT measure is introduced for any EU/EEA-located residential or commercial real estate purchased by a 'person' between midnight on 6 December 2011 and 31 December 2013
  • If a property is bought during this period and held for at least 7 years, any capital gain relating to that 7-year holding will be fully relieved from CGT. This is very significant, given that the normal rate of CGT on disposals is 30% less any foreign tax credit
  • The legislation clearly applies to the acquisition of real estate not only by Irish resident individuals but also by Irish companies (to quote the legislation in S64 of the Act, the relief is available where the gain will be ''-----income or profits to which the Income Tax or Corporation Tax Acts apply---''). Similarly, if a gain arises in an Irish Limited Partnership where a partner is within the scope of Irish Income Tax or Corporation Tax, the relief will apply
  • The exemption time-apportions the gains. For example, a property held for 12 years will be 7/12 relieved from CGT
  • The property must be acquired for a consideration equal to the market value of the property
  • There are measures to prevent 'contrived arrangements' availing of the relief

Real Estate Investment Planning Opportunities

The CGT property relief opens an obvious and significant doorway to optimum planning for Irish companies purchasing real estate in EU and EEA real estate in the EU/EEA.

An Irish company can now function as a tax-free personal real estate investment vehicle for the next seven years, particularly when combined with a tax exemption in the jurisdiction in which the property is situated (commonly after a minimum holding period, such as 5 years in Italy). Ireland therefore becomes a major competitor to such real estate holding jurisdictions as Luxembourg.

Other Finance Act measures include:-

Holding Companies: Non–Euro Bank Accounts

The Finance Act has introduced a new provision to simplify the tax treatment of foreign currency gains and losses arising on bank deposits held by holding companies in non-Euro currencies. The tax treatment will now follow the accounting treatment, and to qualify, the holding company must have at least one wholly-owned trading subsidiary.

Special Assignee Relief Programme (SARP)

New incentives for multinational companies to establish operations in Ireland, in particular to facilitate the transfer of key employees (who have spent at least five years outside Ireland). A SARP has been introduced to reduce the cost to employers of assigning key individuals from abroad to take up positions in the Irish base operations of their employer.

Foreign Earnings Deduction for Employees

A foreign earnings deduction for employees of companies which are expanding into emerging markets in the BRICS countries (Brazil, Russia, India, China and South Africa) has been introduced. This will reduce the Irish income tax liability for these employees where they spend time developing markets in these countries, and will incentivise employees to engage in important overseas developmental initiatives.

Three Year Corporation Tax Relief for 'Start-Up' Companies

A further extension is confirmed of the tax exemption for new start-up companies until the end of 2014 in respect of new trades commenced in the years 2012 to 2014 inclusive. Where the conditions for relief are satisfied, a qualifying company can generate nearly €1m in tax-exempt profits over a 3-year period

International Financial Services

Multiple technical measures have been introduced in the Act to further incentivise the international financial services industry.

Research and Development Tax Credit

The R&D special tax credit regime has been amended to make it more flexible and will permit more companies to avail of the relief, which will be of particular benefit to small and medium –sized enterprises (SMEs). Companies receiving the credit will also be able to use a portion of the credit to reward and incentivise employees.

Tax Treatment of Foreign-Sourced Dividends

The Act confirms taxation at 12.5% (instead of 25%) in the hands of an Irish resident company of foreign-sourced dividends paid out of trading profits of privately held companies in countries with which Ireland does not have a tax treaty and which have joined the OECD Convention on Mutual Administrative Assistance in Tax Matters. The receipt of dividends from privately owned trading companies is therefore now taxed at 12.5% where the payer is resident in an EU, treaty or OECD/CofE Convention jurisdiction.

Relief for Company Mergers

Provision is made for relief from Stamp Duty for cross-border mergers and mergers of Irish public limited companies

Investing in Renewable Energy Generation

The tax relief for corporate investment in renewable energy generation projects has been extended to 31 December 2014. Subject to certain conditions, a tax deduction of up to €12.7m per annum is available to an investor company for monies invested in shares of qualifying renewable energy companies.

Employment and Investment Incentive (EII) Scheme and Seed Capital Scheme (SCS)

The EII scheme was introduced in Finance Act 2011, replacing the Business Expansion Scheme (BES). EU approval for the scheme was received ,and took effect on 25 November 2011.The requirement that relevant trading activities be carried on principally In Ireland and that at least 75% of the amount expended on those activities be expended in Ireland, has been replaced by a requirement that the relevant trading activities be carried on from a fixed place of business in Ireland, thus allowing a wider range of activities to qualify for the EII scheme.

The enhanced SCS, which removes the limitation on the trades that qualify and simplifies the operation of the scheme, also took effect from 25 November 2011, and the provisions of these schemes are reflected in the Act.

Value Added Tax

The Act confirms that the standard rate of VAT increased from 21% to 23% on 1 January 2012.

Capital Gains Tax and Capital Acquisitions Tax

The Act gives effect to CGT of 30% in respect of disposals made from 7 December 2011. The CAT rate has likewise increased to 30% in respect of gifts and inheritances taken on or after the same date.

Stamp Duty

Stamp Duty on the acquisition of all Irish non-residential property has been reduced from 6% to 2%, a boost to the regeneration of the Irish commercial real estate market.

Anti-Avoidance-Offshore Trusts

Amendments are enacted to close off two avoidance schemes in cases where individuals have become temporarily removed and subsequently re-appointed as beneficiaries of an offshore trust to avoid a Capital Gains Tax liability

Our View

Verfides welcomes the innovative measures included in the Finance Act 2012, which will continue to enhance Ireland as a location of choice for international inward investment. Ireland is also now location of choice for international real estate investors. The Act will incentivise key business executives to relocate to Ireland as well as enhancing the operating environment for existing Irish enterprises.

We welcome enquiries on any aspect of the Finance Act or any aspect of Irish taxation and the use of Ireland in international tax planning.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.