Private business in Ireland and the 2018 Budget

Oct 10, 2017

  • Despite greater fiscal space than anticipated, the 2018 Budget saw little in terms of immediate tax breaks for business
  • Minister Donohoe announced the introduction of an SME-focused share option incentive, KEEP for options granted in the five year period from 1 January 2018
  • No changes were announced to the current Entrepreneur Relief lifetime limit of €1 million, despite calls for an increased threshold
  • Measures were introduced to prepare for Brexit including investment in education and infrastructure and the creation of a Brexit loan scheme that will see €300m available to Irish businesses at competitive rates
  • Minister Donohoe is launching a consultation process following the release of the Coffey Report last month; private business needs to ensure that measures introduced do not have an adverse impact


PwC 2018 Budget Ireland logo.

Minister Donohoe used the 2018 Budget as a platform for the Government to highlight its awareness of the issues presented by Brexit and outline his first response as Minister. The Minister set out capital expenditure measures and supports for SMEs that are aimed at supporting the Irish economy in the context of global political and economic uncertainty.

However, despite creating additional fiscal space through a range of Revenue generating measures, the Minister did not find room to enhance Entrepreneur Relief or provide any further tax breaks to business.

Brexit and private Irish business

It’s not yet clear how the UK’s decision of 23 June 2016 will impact on indigenous Irish business. In this year’s Budget the Government has signalled its awareness of the Brexit challenge for business and has set out the actions they are taking to protect the sectors most vulnerable to its impact.

The 2018 Budget demonstrated the Government’s focus on preparing Ireland for Brexit but gave little else to Irish private business.

John Murphy PwC Ireland

In particular, the Minister announced the introduction of a new loan scheme with available funds of up to €300 million. The scheme should provide funding at competitive rates to SMEs, including food businesses.

Preparation for Brexit also dictated allocations across a number of Departments, including additional funding for staffing in the Departments of Foreign Affairs and Trade and Business, Enterprise and Innovation. In addition, the Department of Agriculture, Food and the Marine will also receive funding in the context of Brexit, including for a Brexit-response loan scheme for the agri-food sector.

SME-focused share option incentive scheme

I was pleased to see the introduction of the Key Employee Engagement Programme (KEEP), an SME-focused share option incentive scheme. This incentive will allow cash-strapped SMEs the opportunity to offer share options to employees in a tax efficient manner. To date, share options in unquoted companies have been unappealing to employees from a tax perspective.

Currently, when an employee chooses to exercise options, an upfront income tax liability arises at the date of exercise on the difference between the market value of the shares on that date and the price paid for the options. Often, these shares would have no available market at the time of exercise and the employee would be left with the unpalatable choice of borrowing to fund the tax charge or letting the options lapse.

In a positive move, the gains arising on the exercise of KEEP share options will be liable to CGT on disposal, rather than income tax, USC and PRSI on exercise. The incentive will be available for five years for options granted between 1 January 2018 and 31 December 2023.

Greater action needed to support Irish entrepreneurs

With Brexit in mind, I believe more could have been done to support Irish entrepreneurs to stay invested and to scale their businesses. A review undertaken by the Department of Finance in 2014/2015 looked at the effectiveness of the Irish tax system in encouraging entrepreneurship. It highlighted both the need to bring Entrepreneur Relief on an equal footing with the UK and the need to incentivise Irish entrepreneurs. We are still far from that position.

Irish entrepreneurs need more assistance than ever in competing with their British equivalents, who will no longer be stifled by EU constraints. In particular, I would have welcomed an increase in the threshold amount to an amount equivalent to the UK’s £10 million. I would have liked the Minister to announce measures allowing entrepreneurs to take some cash off the table, for example by offering a reduced dividend rate as an alternative to selling their business.

Consultation welcomed following the Coffey Report

The Minister also made reference to the Coffey report. Published on 12 September, the report calls for Ireland to update its Transfer Pricing (TP) rules and apply them to non-trading transactions, capital transactions and transactions of SMEs. It also recommends that Ireland should move to a territorial tax system and/or enhance our foreign tax credit regime.

I welcome the Minister’s call for open consultation on the proposed changes. It is important that the feedback from this process informs any changes and that the changes are practical and well flagged in advance of implementation. SMEs should not be subject to disproportionate TP obligations, particularly given the limited resources they have available.

Investment in infrastructure is always good news

Finally, despite the lack of positive tax changes for Irish indigenous business, there was good news in the form of spending announcements, which should see strong investment in infrastructure. Underfunding in this area was widely discussed in the lead up to Budget day and I welcome any investment that makes conducting business in Ireland less costly in the longer run.  I also welcome the injection of activity for indigenous companies that will be given the opportunity to tender for these projects.

Portrait of John Murphy, PwC Ireland.

John Murphy, Tax

John Murphy is a tax partner focused on working with Irish companies to optimise their tax position and grow their business both here and overseas.

+353 (0)1 792 6439

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Minister Donohoe used the 2018 Budget as a platform for Government to highlight its awareness of the issues presented by Brexit.

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