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On 13 October 2020, Ireland's Minister for Finance and
Public Expenditure and Reform, Paschal Donohoe T.D., (the
"Minister") delivered his Budget 2021 speech.
Budget 2021, which was the largest in the history of the Irish
State, was framed against the backdrop of a period of unprecedented
uncertainty, with Covid-19 and Brexit to the fore in the various
spending measures announced. A record spending package of over
€17 billion has drawn broad economic welcome, notwithstanding
a projected deficit of €21 billion. A strong performance from
the resilient multinational economy has meant that the fall in
consumption taxes has been cushioned to a large extent by increased
corporation taxes. Further, projected falls in GDP have not been as
stark as initially feared, with those strong GDP numbers limiting
the rise in the debt/GDP ratio, and low interest rates keeping the
cost of national borrowing manageable.
The Budget focused heavily on spending, with a tax package of
only €270 million. Set out below is a brief overview of the
key Tax highlights arising from Budget 2021 as announced. Further
details regarding the changes highlighted by the Minister, as well
as any measures not specifically announced in his speech, are
awaited in the Finance Bill which is expected to be published on 22
The majority of the measures announced by the Minister will take
effect from 1 January 2021 following the passing of the Finance
Bill. Some of the measures announced by the Minister were
introduced by way of financial resolution and took effect from
midnight on 13 October 2020 (the relevant measures are referenced
below) and other initiatives, such as measures to promote the
digital gaming industry are to be developed in 2021 for
implementation in 2022.
|Policy outlook and international tax
- Continued commitment to Ireland's 12.5% corporate tax
- Finance Bill 2020 will include a technical amendment to the
Exit Tax legislation contained in the Anti-Tax Avoidance Directive
("ATAD") to ensure that the provision
relating to the calculation of interest on instalment payments of
Exit Tax operate as intended.
- The process of the transposition of interest limitation rules
and reverse anti-hybrid rules required under ATAD will continue
into 2021. Following a consultation process, it is expected that
such rules will be contained in Finance Bill 2021.
- A technical amendment to section 541 Taxes Consolidation Act
1997 ("TCA") to include that transfers
of foreign currency between bank accounts, denominated in the same
foreign currency held by the same person will not be subject to
Capital Gains Tax ("CGT"). This will
apply to disposals made on or after 14 October 2020.
- Work will take place in 2021 on the development of a tax credit
for the digital gaming sector, with a view to supporting qualifying
activity from January 2022 onwards.
- An update to Ireland's Corporation Tax Roadmap is also to
be published to summarise the decisions implemented to date and
outline areas for future consideration, consultation and
|Domestic and international large companies
- For specified intangible assets, a balancing charge, or
clawback of tax depreciation allowed against the assets, did not
previously arise where such an asset was disposed of more than five
years after the beginning of the accounting period of the company
in which the asset was first acquired. With effect from 14 October
2020, balancing charges may now also arise in respect of specified
intangible assets acquired on or after 14 October 2020 where the
asset is disposed of more than five years after the beginning of
the accounting period in which the asset was first acquired.
- Extension of Knowledge Development Box, which provides for a
6.25% effective rate of corporation tax on profits generated from
exploiting certain assets, such as patents and software through
research and development (R&D) activities carried out in
Ireland, until 31 December 2022.
- Amendment of the holding requirement under the CGT Entrepreneur
Relief, which allows a CGT rate of 10% on disposals of
"qualifying business assets", to allow an individual who
held at least 5% of shares in a qualifying company for a continuous
period of any three years to qualify for the relief (changed from a
requirement of three out of the previous five years). This
amendment will come into effect from 1 January 2021.
|Measures for businesses impacted by Covid-19
- Introduction of a Covid Restrictions Support Scheme
("CRSS") for impacted businesses in line with the Plan
for Living with Covid-19. From 13 October 2020, qualifying
businesses can apply to the Irish Revenue Commissioners
("Irish Revenue") for a cash payment for the period of
restrictions which results in their operations being reduced or
prohibited, subject to a maximum weekly payment of €5,000. Any
payment received under the CRSS will take the form of an advanced
credit for tax deductible trading expenses and will be available to
businesses that have suffered an 80% decline in turnover,
calculated with reference to the business' turnover in
- Extension of section 481 (Film Tax Credit) Regional Uplift
scheme by inserting an additional year of uplift at the rate of 5%
- Reduction of the rate of VAT for the hospitality and tourism
sector from 13.5% to 9% from 1 November 2020 to 31 December
- Extension of the tax debt warehousing scheme to include
repayments of the Temporary Wage Subsidy Scheme owed by employers.
Self-employed taxpayers, who as a result of Covid-19 are unable to
pay their income tax liabilities, will also be able to warehouse
their 2020 preliminary income tax liability, and the balance of
their 2019 income tax liability. Irish Revenue have advised that if
income for 2021 is also at least 25% lower than income for 2019,
then the balance of the 2020 income tax liability and the
preliminary tax liability for 2021 can also be warehoused.
- The waiver of commercial rates, currently in place, has been
extended to Quarter 4, 2020 to support eligible businesses impacted
by the Covid-19 pandemic.
- Confirmation that there will be no cliff edge end to the
Employment Wage Subsidy Scheme currently due to expire on 31 March
2021 and that a similar type of scheme will be needed until the end
of 2021 to provide businesses with certainty.
- Extension of the Residential Development (Stamp Duty) Refund
Scheme to 31 December 2022. In addition, the time allowed between
commencement and completion of a qualifying project in order to
qualify for a refund under this scheme, is to be extended from 24
months to 30 months.
- Extension of the Help to Buy scheme, a tax incentive for
first-time property buyers to 31 December 2021 with an increase in
the amount claimable to €30,000 or 10% of the purchase price,
|Employment and individual taxes
- The tax deduction for utility expenses incurred by employees
who are remote working is extended to broadband and other vouched
expenses provided they are incurred wholly, exclusively and
necessarily in the performance of their duties of employment.
Further details on this tax deduction are to be provided by Irish
Revenue in due course.
- Increase in the 'earned income' credit from €1,500
to €1,650, this brings the credits available to self-employed
workers in line with those available to employees.
- Increase in the 'dependent relative' credit for carers
from €70 to €245.
- Increase in the 2% Universal Social Charge ("USC")
band from €20,484 to €20,687 and the threshold for the
higher rate of employer PRSI will increase from €394 to
€398. These changes, along with the increase in the national
minimum wage, are to be introduced from 1 January 2021 with a view
to ensuring that a full time minimum wage worker remains within the
remit of the 2% USC band, and the 8.8% rate of employer PRSI.
- Extension of the reduced rate of USC for medical card holders
for a further year.
- Extension of Consanguinity (Stamp Duty) Relief until 31
- Extension of Farm Consolidation (Stamp Duty) Relief until
- Increase to the Farmers Flat Rate Scheme from 5.4% to
|Climate and environmental measures
- Extension of the accelerated capital allowance scheme for
Energy Efficient Equipment until 31 December 2023. In addition, the
energy efficiency criteria for the scheme will be re-assessed in
2021 to ensure that the categories of equipment availing of this
scheme remain appropriate.
- Increase in Carbon Tax from €26 to €33.50 per tonne.
This increase will take effect for auto fuels from midnight 13
October 2020. Its application to other fuels will be delayed until
1 May 2021.
- A new Vehicle Registration Tax
("VRT") structure of rates and bands
will be introduced from 1 January 2021 for new vehicles and imports
to align with the Worldwide Harmonised Light Vehicle Test Procedure
("WLTP") emissions system, VRT reliefs
for plug-in hybrid electric vehicles and hybrids will be allowed to
expire at the end of 2020 and VRT reliefs for battery electric
vehicles will be tapered to reflect the move to the WLTP emissions
- A new motor tax rate table will be introduced to align with the
move to the WLTP emissions system and it will apply to cars first
registered in Ireland from 1 January 2021. Changes will also be
made to the existing motor tax rate tables that apply to cars first
registered in Ireland between July 2008 and December 2020.
- The nitrogen oxide (NOx) emissions based charge introduced in
Budget 2020 will be altered to ensure that higher NOx emitting
vehicles will pay an increased charge.
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.
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