O’GRADYS
SOLICITORS
Tax Facts 2012
Republic of Ireland
O’Gradys,
Solicitors,
4th Floor,
8-34 Percy Place,
Dublin 4.
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SOLICITORS
INCOME TAX
€
€
€
PERSONAL TAX CREDITS
2011
Change
2012
Single persons
1,650
-
1,650
Married persons/ Civil Partners
3,300
-
3,300
Additional one-parent family
1,650
-
1,650
PAYE
1,830
-
1,650
Age Credit - Single
245
-
245
Age Credit - Married
490
-
490
Home Carer (Max)
810
-
810
Rent tax credit
<55/ 55+ Single
320/640
80/160
240/480
<55/55+ Widowed
640/1,280
160/320
480/960
<55/55+ Married
640/1,280
160/320
480/960
-
Nil/Nil
<55/55+ Available at Top Rate
Nil/Nil
Blind persons:
1 spouse blind
1,650
-
1,650
Married (both blind)
3,300
-
3,300
825
-
825
Blind persons guide dog allowance
Widowed parent:
1st year after year of bereavement
3,600
-
3,600
2nd year after year of bereavement
3,100
-
3,100
3rd year after year of bereavement
2,700
-
2,700
4th year after year of bereavement
2,250
-
2,250
5th year after year of bereavement
1,800
-
1,800
Widowed person without dependent child:
2,190
-
2,190
EXEMPTION LIMITS - 65 YEARS AND OVER:
Single/widowed
18,000
-
18,000
Married
36,000
-
36,000
Single/widowed persons
32,800
-
32,800
Married couples, one income
41,800
-
41,800
Married couples, two incomes
65,600
-
65,600
One parent/widowed parent
36,800
-
36,800
STANDARD RATE BANDS
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Contents
Chapter
Pages
1)
Personal Taxes
4-6
2)
Employment Taxes
7-9
3)
Pension Matters
9 - 10
4)
Business Tax
11 - 12
5)
Financial Services
13 - 16
6)
Property & Construction
17 - 18
7)
VAT
19 - 20
8)
Capital Taxes
21- 22
9)
Research & Development
23 - 24
10) Revenue Powers
25 - 26
11) Stamp Duty
27 - 28
12) Tax Rates & Credits 2012 (Chart)
29 - 30
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1.
Personal Taxes
Rent relief
Relief for rent credit will be withdrawn on a phased basis over 7 years.
DIRT and Deposit Interest
Rate of DIRT increased by 3% from 1/Jan/2012.
Rates 30% (Deposit accounts)
33% (Certain Life Assurance Policies & Investment Funds)
Mortgage Interest
Increase to 30% in mortgage interest relief for first time buyer who took out their first
mortgage in 2004-2008.
For first time buyers who purchase in 2012, mortgage interest relief will be:
Years 1 & 2
25%
Years 3 - 5
22.5%
Years 6 – 7
20%
Relief ends after year 7.
Non first time buyers: 15% for first 7 years only.
No mortgage interest relief will be allowed on mortgages taken out after 31 December 2012.
Limits on relievable interest:
First Time Buyers
Non First Time
Buyers
Single
Married
€10,000
€20,000
Single
Married
€3,000
€6,000
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PRSI contribution, Universal Social Charge
Increase in the exemption threshold from €4,004 to €10,036.
Employer *
Employee**
PRSI
Universal Social Charge
*
**
***
****
%
10.75%
4.25%
Income
No limit
If income is €365 p/w or less
4%
2%
4%
7%
No limit**
Up to €10,037***
€10,037 to €16,016
> €16,016****
Employer PRSI relief on employee pension contributions will be removed from 1January 2012.
Employees earning €352 or less p/w are exempt from PRSI. In any week in which an employee is
subject to full rate PRSI, the first €127 of weekly earnings is disregarded.
Individuals with total income up to €10,036 are not subject to the Universal Social Charge.
Reduced rate (4%) applies for persons over 70 and/or with a full medical card.
Self-employed PRSI contribution, Universal Social Charge
PRSI
Universal Social Charge
*
**
***
%
4%
2%
4%
7%
10%
Income
No limit*
Up to €10,036**
€10,037 to €16,016
€16,017 to €100,000 ***
> €100,000***
Minimum annual PRSI contribution is €253
Individuals with total income up to €10,036 are not subject to the Universal Social Charge
Reduced rates (4% and 7%) apply for persons over 70 and/or with a full medical card.
Illness & Injury Benefit
The income tax exemption that applied to the first 36 days of annual Illness Benefit and
Occupational Injury Benefit has now been removed. Such payments are now taxable from
2012 onwards.
Domicile Levy
Citizenship has been removed as a requirement for the payment of the domicile levy.
The domicile levy will be payable by Irish domiciled individuals:
 Whose qualifying Irish assets exceed €5m;
 Whose worldwide income exceeds €1m; and
 Whose liability to income tax for the relevant year is less than €200,000.
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PRSI on non-employment income of employees
From the 1st of January 2013 employees/pensioners will suffer a 4% PRSI liability on nonemployment income.
Other Matters
Civil Partnerships
The Act introduces some minor changes in regard to maintenance relief. Civil Partners will
now be placed on the same footing as married persons in certain break-up situations, where
both partners continue to live under the same roof.
Tax relief on third level fees
The tax relief for fees paid for third-level education remains, but the amount to be
disregarded in any such claim has increased from €2,000 to €2,250, with pro rata changes
for part-time courses.
Artist’s exemption
The current general Revenue practice of publishing information is placed on a statutory
footing in respect of beneficiaries of this tax exemption.
Income tax relief for significant buildings and gardens
The Act contains a new provision requiring such buildings to be open for public visits during
National Heritage week.
Age related income tax credit for health insurance premiums
No relief is available for those > 60 years old, with graduated amounts of relief for various
bands thereafter up to full relief at age 85.
Tax relief for charitable donations
Rate of tax relief on charitable donations of ‘around 30%’ will replace existing higher and
standard rates. The benefit will go to the charity. PAYE and self-assessed taxpayers will no
longer be distinguished. Currently a charity is only entitled to this refund for donations by
PAYE taxpayers. Self- assessed taxpayers must claim a deduction on their personal tax
returns for qualifying donations. An annual limit of €1 million per individual can be taxed
relieved. It is anticipated that the specific changes will be formally announced in Budget
2013 and will be effective from the 1st of January 2013.
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2. Employment Taxes
Special Assignee Relief Programme (‘SARP’)
A Special Assignee Relief Programme (SARP) is being introduced to reduce the cost to
employers of assigning skilled employees from abroad. Its aim is to encourage the relocation
of key talent within organisations to Ireland. The new relief is complex.
An exemption from income tax on 30% of salary between €75,000 and €500,000 will be
provided for employees that are assigned for a minimum of 1 year and a maximum of 5
years. The new SARP regime will only apply for individuals arriving in Ireland in any of the
three tax years 2012, 2013, 2014, with effect from 1 January 2012. If an individual qualified
under the previous regime in 2011, they cannot qualify for the new regime as it is only
applicable to those who arrive in Ireland from 2012.
The following criteria have to be met:
 Must be employees of companies incorporated and tax-resident in a double tax
treaty country, or a company resident in a country with which Ireland has a tax
information exchange agreement. Does not apply to unincorporated businesses.
 Employee must have been employed by the employer for 12 months before
coming to Ireland and must substantially perform all their duties in Ireland.
 Employee cannot have been tax-resident in Ireland for 5 years before arriving in
Ireland.
 Employer must certify that the conditions have been met.
 Employees can recover the cost of a return trip for their family to their home
country from their employer tax-free and can have school fee (up to €5,000/child)
paid by their employer tax-free.
 Minimum base salary of €75,000.
Foreign Earnings Deduction
The Foreign Earnings Deduction (FED) supports Irish employers in managing the cost of
sourcing business in emerging business. It applies to Brazil, Russia, India, China and South
Africa (BRICS). Deductions are capped at €35,000.It applies to:

An Irish resident who has 60 qualifying days working outside Ireland in the BRICS
countries in a continuous 12 month period
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Share-based remuneration
The Finance Act includes a number of measures designed to clarify the application of PAYE,
USC, and PRSI withholdings to share-based remuneration.
These include the following:
 The repayment of the income levy and Universal Social Charge (USC) where shares
are forfeited.
 Removal of the technical double charge to USC on the grant and exercise of SAYE
options and former Revenue-approached share options.
 Confirmation that gains made on the exercise, release, or assignment of a share
option are not charged to USC at the additional 3% rate (maximum 10%) where
relevant income exceeds €100,000.
 Where an individual exercises a share option they must pay income tax within 30
days of the date of exercise.
 Where an individual is due to pay income tax on exercise at the marginal rate of
41%, they must also pay USC at the 7% rate.
 The current position around the application of tax and PRSI to share-based rewards
can be summarised in the following table:
Scheme Type
Share awards
Share option gains
Approved Profit
Sharing Scheme
(APSS)
Save As You Earn
(SAYE) share option
scheme
Income tax
(41%)
Liable under PAYE
Liable under selfassessment within
30 days of exercise
USC (7%)
None
Liable under PAYE
Employee social
security/PRSI (4%)
Liable under PAYE
Liable under PAYE,
unless no longer in
employment in which
case selfassessment applies
Liable under PAYE
None
Liable under PAYE,
unless no longer in
employment in which
case selfassessment applies
Liable under PAYE,
unless no longer in
employment in which
case selfassessment applies
Liable under PAYE
Liable under selfassessment within
30 days of exercise
Revenue Job Assist
The Revenue Job Assist scheme provides incentives to both employers and employees in
relation to long term unemployed individuals. The scheme allows employers to obtain a
deduction for a 3 year period for salaries paid in relation to qualifying employments and also
to claim additional tax allowances for a 3 year period. The employee is also entitled to
medical card and fuel allowance benefits for a 3 year period. This scheme has now been
amended such that individuals signing on for PRSI credits are also eligible to participate in
the scheme.
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3. Pension Matters
Deemed Distribution Fund
The amount of the deemed distribution fund from an Approved Retirement Fund (‘ARF’) has
been increased from 5% to 6% in respect of ARFs held by individuals with asset values over
€2m at 30 November in a tax year. A 5% deemed distribution applies to a vested Personal
Retirement Savings Account (PRSA) with effect from 1 January 2012 onwards (where the
value is less than €2m on 30 November in that tax year). Where the value of vested PRSAs
on 30th November in a year is greater than €2m, the 6% rate applies.
Employer PRSI relief
Employer PRSI relief has been withdrawn from 1 January 2012.
Payments and transfers
Any payment from an ARF is regarded as a distribution and is therefore taxable as such.
The event of the death of an ARF holder is regarded as a distribution. The Finance Act 2012
amends the tax rate that applies on an ARF transfer to a child over 21 years of age from
20% to 30%.
Relief on chargeable excess
Measures have been introduced to reduce the immediate tax burden arising where an
individual retires and their pension fund is in excess of The Standard Fund Threshold of
€2.3m. These measures apply to public sector pensions only. At present, a scheme
administrator must account for the tax arising on the ‘chargeable excess’ upfront and then
seek recompense out of the scheme member’s entitlements. The new proposals will work as
follows:



The recompense which the scheme administrator can obtain from a pension lump
sum is capped at a maximum of 50% of the value of the net lump sum
Then the balance if any may be recovered from (i) the annual pension entitlement
over a period agreed with the individual up to a 10-year maximum, or (ii) a
payment of any outstanding balance by the individual within 3 months from the
date that the ‘chargeable excess’ arose to the scheme administrator. A
distribution from an ARF or vested PRSA of the individual to fund same shall not
be liable to tax as a distribution under ARF rules.
Relief has been introduced to allow scheme administrators to claim a credit for
some of the tax due on the ‘chargeable excess’ (e.g. where the SFT/PFT is
exceeded at retirement). Scheme administrators must now offset the tax charged
at the standard rate of income tax on the lump sum against the tax on the
‘chargeable excess’. Where tax (on the lump sum) is unused, it may be carried
forward for offset against tax on a future ‘chargeable excess’.
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

A credit does not appear to be available for any tax payable at the marginal
income tax rate on a pension lump sum (such marginal tax rate applies to the
element of a lump sum amount in excess of €575,000).
Amendments are effective from 8 February 2012.
Private and public sector pensions
An opportunity is now being provided to individuals who have a private and public sector
pension entitlement to ‘cash in’ their private sector entitlement on a once-off basis. They may
encash their private pension rights in whole or in part from age 60 with a view to minimising
any ‘chargeable excess’ on retirement. Tax will apply to the encashment of the private
pension at the marginal rate of income tax plus the Universal Social Charge at the rate of
4%. The encashment is not then taken into account in calculating the value of the public
sector employee’s pension on retirement.
Other Matters





Employee pension contributions are no longer deductible in computing employee
PRSI and the Universal Social Charge liability.
The annual earnings cap which determines the maximum tax-deductible pension
contribution by employees and self-employed individuals has been reduced to
€115,000.
An overall lifetime limit of €200,000 has been introduced on the amount of taxfree retirement lump sum that an individual can draw from all pension
arrangements. The first €375,000 of such lump sums will be taxed at the
standard rate (currently 20%). Any excess over the aggregate amount of
€575,000 will be taxed at the marginal rate.
The SFT has been reduced to €2.3m. Excess value over this threshold can suffer
effective tax rates of up to 69%.
An annual pension levy of 0.6% has been introduced in 2011 on the value of
private pension funds (effective for 4 years).
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4. Business Tax
Corporation Tax Rates – 12.5% Trading Income V’s 25% Passive Income
Group relief for tax losses
A loss group will now include companies which are tax-resident in an EU or tax treaty
country as well as any company which has its principal class of shares substantially and
regularly traded on a recognised stock exchange.
Tax on dividends
A relief may apply where a company receives dividends out of the trading profits of a
company which is tax-resident in the EU, or a country with which Ireland has a double tax
treaty. Under this relief, the rate of tax on the dividend is capped at 12.5% (with a credit
available for underlying foreign tax). The relief also provides for an exemption from tax on
dividends received by share dealers from portfolio shareholdings. This also includes
dividends from companies located in countries with which Ireland has ratified the OECD
Convention on Mutual Assistance in Tax Matters but with whom Ireland does not have a
treaty or they are not part of the EU (e.g. Brazil).
Unilateral relief for foreign tax on royalties and interest
The Act provides that any foreign tax suffered in respect of royalties (derived from certain
types of intellectual property – e.g. copyrights, patents, and trademarks) which cannot be
used to reduce the income because there is insufficient income to do so, can be used to
reduce other foreign source royalty income which is taxed as trading income. The Act also
states that, where royalties of the type described above or interest income are received in
the course of a trade, the amount of income from those royalties or interest may be reduced
by the amount of foreign tax borne on the royalties or interest.
Relevant Contracts Tax (RCT)
The current paper-based RCT system has been replaced by an electronic system. Principles
engaged in the construction, forestry and meat-processing sectors are now obliged to submit
information, data, payments and returns to the Revenue electronically.
The Finance Act contains a number of amendments requiring additional information
regarding the contract in place and the subcontractor. It also provides for a waiver for
principals from their online filing obligations in the event of a “technology systems failure”.
Repair or alteration of systems installed in buildings as well as the installation, repair or
alteration of telecommunication systems will fall within the RCT provisions.
The list of principal contractors who are obliged to operate RCT is being extended to include
certain telecom companies and others in the sector.
Furthermore, the definition of construction operations is extended to include the installation,
alteration or repair of systems of telecommunications
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Corporation tax relief for start-up companies
New companies which start to trade will be exempt from corporation tax on their first three
years of trading income. The Finance Act extends this relief to companies commencing trade
up to 31 December 2014. The maximum annual tax liability for which the shelter is available
under this scheme is €40,000.
Professional Services Withholding Tax
The list of persons who are required to operate Professional Services Withholding Tax has
been amended to delete certain bodies such as the Commission for Taxi Regulation, and to
add a new body, the Health and Social Care Professional Council.
Company Mergers
The Act introduces an exemption from capital gains tax to ensure that a merger between an
EU company and its EU parent, without the need for the company to go into liquidation, will
be a tax-free event for the company.
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5. Financial Services
Investment Management
Rates of exit tax
The rates of exit tax applicable to investment undertakings have increased by 3% for
chargeable events occurring on or after 1 January 2012. The rates of exit tax applicable to
Personal Portfolio Investment Undertakings have also increased by 3%.
The rate of exit tax is reduced to 25% for Irish corporate investors in an investment
undertaking.
Reorganisation Relief – Anti Avoidance
A new anti-avoidance measure has been introduced in relation to certain transactions
carried out with investment undertakings. There are relieving provisions which treat
reorganisations, amalgamations or reductions of share capital and certain conversions of
securities as not giving rise to a disposal for Irish capital gains tax purposes in certain
circumstances. The new measure prevents this relief from applying where a company (which
is not an investment undertaking) is involved in any of the above transactions with an
investment undertaking.
Domestic fund under old regime
A number of domestic Irish funds continue to be taxed under the old regime for funds. Under
that regime, such funds continue to pay tax on income and gains. The taxable income and
gains of such funds were taxed at the standard rate of income tax (i.e. 20%). This rate of tax
has been increased to 30%.
Inward migrating funds
A new provision has been introduced which relaxes the tax administration burden for certain
investment funds redomiciling into Ireland. It relieves the redomiciling fund from the usual
requirement to obtain declarations of non-Irish tax residence from investors who held shares
or units in the fund on the date of redomiciliation. The provision applies to funds redomiciling
into Ireland from certain specified territories (including Bermuda, the British Virgin Islands,
the Cayman Islands, Guernsey, the Isle of Man and Jersey).
The investment undertaking is also required to apply exit tax where an investor who was
non-Irish tax-resident at the date of the redomiciliation subsequently becomes Irish taxresident.
Technical charge to Irish tax for ETF holders
Where non-Irish tax-resident investors hold shares or units in an Irish investment
undertaking they should not suffer exit tax on distributions or gains on disposal of their
shares or units. In addition, such investors are excluded from the technical charge to Irish
tax on a self-assessment basis in respect of payments received from the investment
undertaking.
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Outbound migration of an Irish fund
A number of changes have been introduced to facilitate the provisions of the UCITS IV
Directive. One of the new provisions deals with the situation where the assets of an Irish
investment undertaking are transferred to a ‘good’ offshore fund. In such circumstances, the
transfer will not be considered to give rise to a chargeable event for the Irish investment
undertaking.
Umbrella offshore funds
The Act includes an amendment which will apply the same treatment to the exchange of
units in an Irish investment undertaking with that of an equivalent ‘good’ offshore fund.
Master-feeder funds
A further change introduced to facilitate the UCITS IV Directive extends an existing relief for
the reorganisation of a non-Irish investment fund into an Irish investment undertaking. The
new provision will allow relief where the units of the Irish fund are issued to the non-Irish
fund (rather than to the investors in the non-Irish fund).
Information reporting for investment undertakings
A revised approach to obtaining information reporting for investment undertakings has been
included in the act.
The main changes are, firstly, that the effective date is updated for payments occurring on or
after January 2012, and secondly, a focus on reporting the value of units and other
information that is more readily available to investment undertakings.
Cash pooling
To facilitate cash pooling and group treasury operations, the Act states that, in the context of
a lending trade, interest paid on short term deposits and loans to non-treaty resident
connected companies will be deductible to the extent that the recipient jurisdiction levies a
tax on such interest.
Foreign tax credit relief for equipment leasing income
The Finance Act includes a new unilateral relief for foreign tax suffered on equipment leasing
rental income. The relief will allow companies which are carrying on an equipment leasing
trade with lessees based in non-treaty countries to take a credit against their corporation tax
for foreign tax suffered on their rental income. There is also a provision for lessors to choose
how they wish to allocate certain tax deductions (such as charges on income and certain
losses) when computing the available tax credit.
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Encashment tax
In an effort to modernise the encashment tax regime, the following amendments have been
made:





Payment and collection agents will be obliged to submit an encashment tax return
along with the tax deducted without the necessity to have first received a notification
to do so from the Revenue.
Payment and collection agents will be obliged to file a return of the encashment tax
collected and pay over that tax within 20 days of the end of the year assessment.
Unpaid encashment tax will now attract interest at the same rates as other unpaid
taxes.
Payment and collection agents will no longer be entitled to receive remuneration from
the Revenue for operating encashment tax.
A longstanding provision, which appointed the Governor and directors of the Bank of
Ireland as commissioners for the purpose of assessing tax on interest, annuities and
public revenue and other dividends, has been abolished as it is now obsolete.
The implementation of the encashment tax amendments is subject to the issue of a
Ministerial Order to allow an opportunity for consultation.
Levies on general insurance
A return for the insurance levy and the insurance compensation levy must be filed and paid
over within 25 days of each quarter end. Previously the deadline was 30 days from each
quarter end.
Life Assurance
The Finance Act contains provisions which will increase the rate of exit tax for life assurance
products by 3%. The list of entities to which life assurance exit tax does not apply has been
extended to include Approved Retirement Funds (‘ARFs’) and Approved Minimum
Retirement Funds (‘AMRFs’) as well as pension schemes.
Technical charge on interest arising to a non-resident
Currently the technical charge to Irish income tax on interest quoted eurobonds and
qualifying wholesale debt instruments does not apply to such interest received by a resident
of a tax treaty partner or EU jurisdiction. This exemption is to be extended to interest
received by a company resident in a non-treaty jurisdiction where:
 The company is directly or indirectly controlled by treaty residents who are not,
themselves, controlled directly or indirectly by non-treaty residents or Irish residents,
or
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
The principal class of the shares of the company, or its 75% parent company, is
substantially and regularly traded on a recognised stock exchange in a treaty
country.
Reporting interest payments
Under the existing legislation, interest payments on certain domestic and international bonds
and other negotiable debt securities are exempt from the reporting requirement to the
Revenue. The Act includes the removal of this exemption from 31 December 2011.
Islamic Finance
Ireland has been keen to support and grow its Islamic industry and in 2010 introduced a
legislative regime to allow companies that provide certain types of Shari’a compliant finance
(‘Islamic finance’) to be taxed in an equivalent manner to parties in a comparable
conventional finance transaction. Under the current legislation a finance company or a sukuk
(Islamic bond) issuer can only elect into the regime. The Act now allows either party in the
transaction to make the election.
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6. Property and Construction
Overview
The following measures, taken by the government, are likely to have significant benefit over
the medium term:
1. The decision not to implement retrospective legislation concerning contracts with
upward-only rent reviews.
2. A more considered, and less severe, scheme for reducing legacy property reliefs.
3. A reduction in all non-residential stamp duty from 6% to 2%.
4. The creation of a new CGT exemption for property to be held for seven years.
Stamp Duty
There will be a reduction of stamp duty on all non-residential property from 6% to 2% for
transactions after Budget Day. This reduction will also apply to other stampable items such
as goodwill, loans and other property to the extent that it is not already exempt from duty.
Intra-family transfers of non-residential property are entitled to 50% stamp duty abatement,
known as consanguinity relief. This relief is to be maintained until the end of 2014.
Legacy property reliefs
The majority of the most severe retrospective impacts of the legacy property reliefs have
been withdrawn and replaced with more targeted measures, namely;


A 5% property relief surcharge imposed on investors with an annual gross income of
over €100,000 which will apply to the amount of income sheltered by property reliefs
in a given year.
Investors in accelerated capital allowances schemes will no longer be able to use
capital allowances beyond the original tax life of the particular scheme where that tax
life ends after 1 January 2015. Where the tax life of the related scheme ends before
1 January 2015, no carry-forward of allowances will be permitted into 2015 and
beyond.
Incentive CGT relief
A special incentive CGT measure is being introduced for property purchased between
midnight on 6 December 2011 and the end of 2013. If a property is bought during this period
and held for at least seven years, the capital gain relating to that seven-year holding period
will be fully relieved from capital gains tax.
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Annual property tax
The minister has formed an inter-departmental group aimed at replacing the €100 household
charge with a full valuation-based property tax. The group is expected to report by April
2012.
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7. VAT
VAT rate increase
The standard rate of VAT has increased by 2% to 23% in Ireland. This measure came into
effect on the 1ST January 2012.
Other VAT measures
VAT on property
Extension of the ‘reverse charge’:


Under existing VAT law, a supplier of construction services is responsible for
paying the VAT unless those services come within the scope of Relevant
Contracts Tax (‘RCT’), in which case the recipient of the service becomes liable
for the VAT (the so-called ‘reverse-charge’ VAT regime).
The Act contains provisions to extend the ‘reverse-charge’ to cases where both
the supplier and the recipient of the construction services are connected parties
(and where the supply is not already caught by the ‘reverse-charge’ for supplies
within the regime). The definition of ‘connected persons’ is wide and includes
persons or bodies of persons connected by family or other close personal ties,
management, ownership, control, common purpose and certain legal ties. The
measure will take effect on 1 May 2012.
Capital Goods Scheme:


The current VAT on property rules contains provisions (known as the Capital Goods
Scheme) which require a property owner to review and, if necessary, adjust the VAT
deducted on property. Usually, the review must be carried out annually over the
course of an ‘adjustment period’ of typically 20 years.
The Act contains measures to clarify the duration of the adjustment period where
development work has been undertaken. The Act also confirms existing Revenue
practice that development of an already completed transitional property (referred to
as a ‘refurbishment’) will not restart the adjustment period applying to that property or
leasehold interest.
Recovery of VAT on accommodation provided under the Travel Agents Margin Scheme:

The Travel Agents Margin Scheme (‘TAMS’) is a special VAT collection regime that
operates in the travel agent sector. The Act contains measures to remove the ability
for businesses to recover VAT incurred on “qualifying” conference accommodation in
Ireland when it is supplied under TAMS.
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Record-keeping for liquidated companies:

The Act contains measures to extend the VAT record-keeping period (6 years) to
liquidated companies.
VAT repayments received under a refund order:

Existing Orders allow for repayments of VAT on certain expenditure by farmers, sea
fishermen, disabled persons, and medical and philanthropic organisations. The Act
includes measures relating to the payment of interest and penalties on incorrect
claims and the raising of assessments to claw back repayments made under an
Order where the conditions attaching are no longer met by the claimant.
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8. Capital Taxes
Capital Gains Tax
Tax Rate
The capital gains tax rate has increased from 25% to 30%. This applies to disposals of
assets made on or after 7 December 2011.
Retirement relief
An individual over 55 years of age continues to be exempt from capital gains tax on
disposals of certain ‘qualifying assets’ (broadly, a business or shares in certain family
companies) to his or her child. However, where the individual has reached 66, this
exemption has been restricted to qualifying assets with a market value of up to €3m and no
relief for the excess. This incentivises the handing-over of family businesses, including
farms, where an individual reaches 55 years of age but removes the incentive for more
valuable businesses where the owner has reached 66.
There is a related change in the exemption which previously applied to an individual over 55
selling qualifying assets where the sale or transfer is not to their children. Previously, where
the proceeds did not exceed €750,000 the gain was exempt from capital gains tax. This
exemption is now restricted where the individual has reached the age of 66. For such
persons, a full exemption is only available where the proceeds do not exceed €500,000, with
marginal relief applying thereafter.
All of these restrictions apply only to disposals made on or after 1 January 2014. This means
that persons who are approaching 66 or are already 66 or over have almost two years’ lead
time to transfer or sell assets and avail of the old regime.
Non-resident trusts
The Act makes a technical amendment to rules which charge Irish-resident or ordinarily
resident individuals to capital gains tax, where non-resident trusts of which they are
beneficiaries make a capital gain.
Prior to the publication of the Act, the rules did not apply where the trust was settled by a
person domiciled outside Ireland, and the settler continued to be domiciled outside Ireland
when the gain was made. This exception will no longer apply.
A charge will now arise to beneficiaries in respect of gains made by the trust during a period
when those persons were excluded from benefit.
Non-Euro bank deposits held by non-trading companies
The Act introduces relieving measures for certain holding companies in respect of foreign
currency deposits.
Firstly, non-Euro currency is not within the Irish capital gains tax net, where:
 It is held in a bank, and
 It is held by a “relevant holding company”, that is a company with at least one wholly
owned trading subsidiary, or a company which acquires or sets up a wholly owned
trading subsidiary within one year of a foreign exchange gain being realised and
credited to its accounts.
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Secondly, only foreign currency gains credited to the profit and loss account (under Irish
GAAP or IFRS) of a relevant holding company will be taxable (at an available effective rate
of 30% as reduced by any foreign currency losses forward or realised in the same period).
Other
The Act contains certain other amendments to the capital gains tax rules, including:
 Previously, a tax deduction was available for contingent liabilities when the
contingency arose. The Finance Act introduces a new rule that the deduction is
available only when a payment is actually made as a result of the contingency.
 Compensation for turf cutters for giving up rights to cut turf in special areas of
conservation under a scheme administered by the Minister for Arts, Heritage and the
Gaeltacht is exempt.
 A new relief has been introduced providing for a CGT exemption on the proceeds
from disposals by certain sports bodies where the proceeds are reinvested within a
five year period. The relief also applies if the proceeds of the disposal are donated for
charitable purposes.
Capital Acquisitions Tax
Tax-free thresholds
Group A
Group B
Group C
€250,000
€33,500
€16,750
Tax rate
The Capital Acquisitions tax rate has increased from 25% to 30%.
Discretionary trusts
The 6% once-off and 1% annual Discretionary Trust Tax, have specifically been extended to
cover entities ‘similar in their effect’ to a discretionary trust.
Agricultural relief
The Act amends the definition of ‘farmer’ for the purposes of agricultural relief.
Modernisation of CAT
Solicitors will be held liable for the CAT of non-resident beneficiaries in cases of probate on
which they act. A further important change brings CAT in line with other tax heads by
providing that payments are to be treated as being applied first against capital, and not
against interest outstanding.
CAT pay and file
The Act moves the CAT pay and file deadline from 30 September to 31 October.
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9. Research and Development
Employee remuneration
A new reward mechanism for key employees involved in R&D activities of a company will
allow them to effectively receive part of their remuneration tax-free. “Key” employees have
been carefully defined as follows:




The employee must not be, or have been, a director of the company and must not
be connected to a director of the company.
The employee must not have, or have had, a material interest in the company or be
connected to a person who has a material interest.
The employee must perform 75% or more of their activities “in the conception or
creation of new knowledge, products, processes, methods and systems”.
75% or more of the emoluments of the individual must qualify for the R&D tax credit
in order for that person to be considered a “key” employee.
Other important conditions and anti-avoidance provisions include:





The company must be paying tax to avail of this reward mechanism.
It is up to the company to decide who receives the benefit of the reward mechanism.
The employee must make a claim to Revenue for a tax refund.
The effective rate of tax payable by the individual cannot be reduced below 23%.
Unused tax credits which the employee has been allocated can be carried forward
indefinitely until they are used (or until the employee leaves the company).
To the extent that some or all of the R&D tax credit is denied (i.e. following a
Revenue audit) there will be a clawback of the overclaim. Revenue will seek to levy
the clawback on the company in priority to the employee.
Base year relaxation
Allowing a larger portion of the total expenditure incurred on R&D to be claimed by
including the first €100,000 of expenditure without reference to a base year threshold –
in effect, a volume-based approach, albeit that the base year applies for expenditure in
excess of €100,000.
Companies engaged in R&D activities and claiming the R&D tax credit will therefore
have up to an additional €25,000 per annum of tax credit available to reinvest.
Outsourcing
Currently many SMES rely heavily on an “outsourced” model. While the Finance Act
does not increase the rate of credit, the increase in the outsourced cap will assist SMES
in conducted their R&D activities by providing more relief for companies relying on
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outsourcing. The legislation requires the company to notify in writing the third-party
provider that I cannot also claim the R&D tax credit. This will no doubt impact on
commercial arrangements between company and the third-party provider.
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10. Revenue Powers
Assessing Tax
The rules governing how taxpayers are assessed to tax have been substantially rewritten. It
is intended to move to a system of full electronic self- assessment for income tax, corporate
tax and capital gains tax for all taxpayers. The currently system is a “pay and file” system.
Under the new system of full self-assessment, taxpayers will be required to submit an
additional “self-assessment”. Notices of assessment will no longer issue from Revenue.
Impact of new self-assessment on taxpayer protections
There is at present no provision in the electronic environment for a taxpayer to disagree with
the indicative tax calculation generated by ROS. This is likely to cause difficulties.
Disagreement with a published Revenue interpretation will no longer be treated as a genuine
doubt. The ability to make an expression of doubt becomes dependent on making a tax
return on time.
The new procedures will apply to companies whose accounting periods start on or after 1
January 2012 and to individuals for the tax years 2012.
New legislation has been introduced to enable Revenue to issue and assessment to tax
without time limit in the event a s. 811 challenge is upheld. Prior to the Finance Act, it was
arguable that there was a prohibition on the issuing of assessments- even where a challenge
was upheld.
Obligation to maintain records for liquidated or struck-off companies
The liquidator or in the case of a company otherwise struck off the register, the last director
must maintain the various tax records for a period of 6 years following the demise of the
company.
Power to require submission of a statement of affairs
Revenue are given additional powers to require a person, or a spouse-civil partner who is
jointly assessed with that person, who has failed to discharge tax that is due to provide a
statement of affairs in a prescribed form.
Power to demand security
The Act provides that, where Revenue have a concern fiduciary taxes (PAYE, VAT,
Relevant Contracts Tax and the Universal Social Charge) will not be paid, and those taxes
are not paid within 30 days of the date due, Revenue may require the taxpayers to provide
security on foot of a written request. This provision makes it an offence for the taxpayers to
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continue to engage in business until the required security is provided, subject to a right of
appeal to the Appeal Commissioners.
Requirement to produce documents and information
For any matter that constitutes an offence, Revenue may apply to the District Court to
compel any person to make available documents or information that might be relevant to an
investigation being carried out by Revenue.
Time limit for Revenue to make assessments extended
Where Revenue form an opinion that a transaction is a tax avoidance transaction, and that
option become final and conclusive the Act includes a provision that in such circumstances
the normal 4 year time limit on Revenue making an assessment does not apply. As there is
also not time limit on Revenue forming an opinion, this means that from 28 February 2012
there is no time limit on Revenue’s ability to take action in a tax avoidance case. This is the
case even where the transaction in question took place before 28 February 2012.
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11. Stamp Duty
Residential Rates
Consideration
1%
= < 1 Million
2%
= > 1 Million
Commercial Rates
2% on full amount of consideration
Modernisation of Stamp duty
The changes include:
i)
The removal of the adjudication procedure
ii)
Revenue will have the power to make assessment and
iii)
Audit and appeal procedures will be introduced.
Other aspects to note are:
 A fine of €3,000 has been introduced if a return is not filed within 30 days.
 The “expression of doubt” facility has been revamped. More detailed information is
now required to be submitted when expressing doubt. A valid expression is only
made if the return and expression of doubt are delivered within 30 days. Provision is
made for an appeal to the Appeal Commissioners if a person is aggrieved by the
decision of the Revenue.
 The penalty system for later payment of stamp duty has been amended to provide for
a surcharge (similar to that for the late filing of a corporation tax return). Other
surcharge provisions are to be deleted.
 A refund claim must be made within 4 years from the date the instrument was
stamped (previously 6 years after executing the instrument).
 On submitting a return, it will be necessary to include an assessment of the stamp
duty chargeable and pay the relevant tax.
 Records must be kept for 6 years.
 Revenue powers of inspection have been introduced.
Mergers of Companies
The Finance Act includes a stamp duty exemption for the transfer of assets pursuant to a
merger, cross-border merger or Societas Europaea (SE) merger effected in accordance with
the relevant EU regulations. The aim of the directive is to facilitate mergers between various
types of limited liability companies governed by the laws of different countries within the
EU/EEA.
3 types of mergers exist:
1) A merger by acquisition
2) A merger by formation of a new company
3) A merger by absorption.
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In each case, the transferee company is dissolved without going into liquidation.
Other changes


A range of measures relating to the financial services sector and some property
specific measures have been introduced.
A “young trained farmer” to whom land is transferred must have a specified
qualification. The FETAC Level 6 Specific Purpose Certificate in Farm Administration
is now included in the list of qualifications that a young trained farmer can hold in
order to obtain relief from stamp duty on the purchase of farmland.
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12. Rates & Credits 2012
Personal Income Tax Rates (rates and bands
unchanged)
Single person
Married couple
(one income) *
Married coupe
(two incomes) * & **
One parent/
widowed parent
At 20% first
€32,800
At 41%
Balance
€41,800
Balance
€65,600
Balance
€36,800
Balance
PRSI contribution, Universal Social Charge
Employer *
Single person
Married couple *
Additional one-parent family credit
Additional credit for certain
widowed persons *
Employee credit
Home carer credit
Rent credit - single and under 55
years (reduced)
€1,650
€3,300
€1,650
€1,650
€1,650
€810
€240**
*Applies to civil partnership/ surviving civil partner also.
** Rent credit phasing out over 7 years, €80 reduction in 2012.
Home loan interest relief granted at source on
principal private residence*
Income
No limit
If income is €365 p/w or less
Employee ** (Class A1)
PRSI
Universal Social
Charge
*Applies to civil partnership/ surviving civil partner also.
** €41,800 with an increase of €23,800 maximum.
Personal Tax Credits (unchanged)
%
10.75%
4.25%
4%
No limit **
2%
4%
7%
Up to €10,036 ***
€10,037 to €16,016
> €16, 016****
* Employer PRSI relief on employee pension contributions will be
removed from 1 January 2012
** Employees earning €352 or less p/w are exempt from PRSI. In any
week in which an employee is subject to full rate PRSI, the first €127 of
weekly earnings are disregarded
*** Individuals with total income up to €10,036 are not subject to the
Universal Social Charge
**** Reduced rate (4%) applies for persons over 70 and/or with a full
medical card
Self-employed PRSI contribution, Universal Social
Charge
PRSI
Universal Social
Charge
%
4%
Income
No limit *
2%
4%
7%
10%
Up to €10, 036**
€10,037 to €16,016
€16,017 to €100,000 ***
> €100,000 ***
First time buyers loans taken out from 2009 to 2012
Years 1-2
Married/ widowed
**
Single
Years 3-5
Married/ widowed
**
Single
Lower of €5,000 or 25% of interest paid
* Minimum annual PRSI contribution is €253
** Individuals with total income up to €10,036 are not subject to the
Universal Social Charge
*** Reduced rates (4% and 8%) apply for persons over 70 and/or with a
full medical card
Lower of €2,500 or 25% of interest paid
Lower of €4,500 or 22.5% of interest
paid
Lower of €2,250 or 22.5% of interest
paid
Years 6-7
Married/ widowed
**
Lower of €4,000 or 20% of interest paid
Single
Lower of €2,000 or 20% of interest paid
Capital Gains Tax
(rate increase)
Rate
Annual exemption
30% *
€1,270
* Effective for disposals made on or after 7 December 2011
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After year 7 (where applicable up to and including
2017)
Married/ widowed **
Single
Lower of €900 or 15% of interest paid
Lower of €450 or 15% of interest paid
Other mortgages, loans taken out from 2004 to
2012
Married/ widowed **
Single
Capital Acquisitions Tax
(rate increase & threshold A reduction)
Rate
30% *
Thresholds
Group A
Group B
Group C
€250,000 *
€33,500
€16,750
* Effective for gifts and inheritances taken on or after 7 December 2011
Lower of €900 or 15% of interest paid
Lower of €450 or 15% of interest paid
Corporation Tax Rates
(no change)
First time buyers, loans taken out from 2004 to
2008
Standard rate
Residential land, not fully developed
Non-trading income rate
12.5%
25%
25%
Remainder of the first 7 years of mortgage
Married/ widowed **
Single
Lower of €6,000 or 30% of interest paid
Lower of €3,000 or 30% of interest paid
After year 7 and up to and including 2017
Married/ widowed **
Single
Lower of €1,800 or 30% of interest paid
Lower of €900 or 30% of interest paid
Value Added Tax
(rate increase)
Standard rate* /
Lower rate/
Second lower rate
Flat rate for unregistered farmers
23%*/
13.5%/
9%
5.2%
* Effective from 1 January 2012
* Loans taken out on or after 1 January 2013 will not qualify for Mortgage
Interest Relief. The relief will be abolished completely from 2018 and
subsequent tax years.
** Applies to civil partnerships/ surviving civil partner also.
Household Charge (new)
Household charge of €100 to apply to owners* of residential
property**
Stamp Duty – commercial and other property
(reduction)
* Owners include tenancies of greater than 20 years
** Does not apply to individuals entitled to mortgage interest supplement
or to properties in unfinished estates.
2%* on commercial (not residential) properties and other
forms of property, not otherwise exempt from duty
* Effective for transfers of property on or after 7 December 2011
Stamp Duty – residential property (unchanged)
1% on properties valued up to €1,000,000
2% on balance of consideration in excess of €1,000,000
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O’Gradys,
Solicitors,
4th Floor,
8-34 Percy Place,
Dublin 4.
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