Again, confirmation that the 12.5% corporation tax rate is here
to stay. It is a key feature of our tax policy and an essential pillar of
creating employment. The extension of
the start up exemption and expansion of BES are all positives.
No Change to the 12.5% Corporation Tax Rate As
previously indicated there is no change to the 12.5% rate of tax on trading
profits. The Minister noted in his speech “We will defend our 12.5%
corporation tax rate against all comers”.
Corporation Tax Exemption for Start-Up Companies Extended Budget 2009 introduced an exemption from corporation tax for 3
years on the trading income and gains of new start-up companies. This exemption applied where a new company
commenced to trade in 2009 and its corporation tax liability did not exceed €40,000
in an accounting period. Marginal relief also applied.
Budget 2010 extended the scheme to businesses commencing in 2010. This
Budget further extends the exemption to companies commencing to trade in
2011. The relief is to be amended so that the value of the relief is
linked to the amount of employer’s PRSI paid in the period subject to a maximum
of €5,000 per employee. If the amount of
employer’s PRSI is lower than the reduction in the corporation tax liability
otherwise applicable, relief will be based on the lower amount.
Reform of BES The current Business Expansion Scheme is being reviewed and
reformed to ensure that the tax relief is fully targeted at job retention and
creation. A new “Employment and
Investment Incentive Scheme” (EIIS) is being introduced. Under the scheme the
lifetime limit a company can raise under the scheme will be increased from €2
million to €10 million. The amount
that can be raised in a 12 month period will be increased from €1.5 million to
€2.5 million. The certification process is also to be simplified. The new incentive will expire in 2013. The new scheme is subject to EU approval and
the current BES scheme will apply in the interim.
Reform of RCT
Targeted
at both reducing black economy opportunities in the construction industry
whilst at the same time protecting existing employment levels, the Minister
announced proposals which will represent significant reform of the Relevant
Contracts Tax regime.
Applicable
to all contractors in construction, meat-processing and the forestry sectors of
the economy, the changes aim to foster compliance and strengthen the
effectiveness of the system.
By
introducing a new withholding tax rate of 20% for subcontractors registered for
tax with an established compliance record this will be a welcome cash flow
boost to struggling subcontractors who will have an additional 15% freed up for
reinvestment in their businesses.
However
it is not yet clear how ‘an established compliance record’ will be measured. The existing 35% rate will be retained for ‘unregistered’ subcontractors.
These rates will both apply on a revenue neutral basis regardless of income or
turnover levels.
The
system will be further reformed to reduce the opportunities for fraud by
strengthening the reporting system for RCT principals. It is also intended to
replace the monthly repayment system and replace this with an offset system.
Date of intended effect of these changes is yet to be provided.
