Domestic economy and private businesses
The retention of the 12.5% tax rate by private businesses is a win for the domestic economy. The measures announced in today’s Budget will make it more attractive for entrepreneurs to establish and grow their business in Ireland:
- Budget 2022 has avoided a ‘cliff-edge’ by extending the EWSS to April 2022.
- The Tax Debt Warehousing Scheme was extended to allow individuals who have a “material interest” in their employer company to participate.
- The reduced VAT rate of 9% for the hospitality sector will remain in place until August 2022.
- Extending the temporary waiver of commercial rates for certain sectors.
- The Finance Bill will include important changes to the Employment Investment Incentive scheme to encourage the flow of much needed seed/early stage investment capital.
- The extension of the corporation tax exemption for start-ups and a new corporation tax credit for companies in the digital gaming sector are both welcome.
- There were no announcements on capital taxes (i.e. CAT & CGT) which is a missed opportunity for businesses who are concerned about succession.
Income tax and employment tax measures
Budget 2022 includes changes to the standard rate band as well as the personal, employee and earned income tax credits. The changes reflect the increased cost of living and inflation. We also saw a change to the USC thresholds to reflect the increase to the minimum wage.
To support the significant number of employees now working from home, the availability of a 30% deduction for heat, electricity and broadband costs from income tax will be given a statutory basis in the Finance Bill.
For employers, there was welcome news that the Employment Wage Subsidy Scheme (EWSS), would continue until 30 April 2022, although the scheme will close to new entrants from 1 January 2022. There will be no changes to the scheme in October and November, however, a dual-rate scheme will operate from December to February. A flat rate scheme will operate in March and April and the reduced employer PRSI rate will no longer be available in this period.
Minister Donohue reflected on the heavy price the aviation industry paid as a result of the pandemic. The Minister announced a €90m package for the industry, targeted at regional operations which have been heavily impacted by the pandemic and provides for a number of capital and operational grant schemes. In a welcome move, the tax arrangements that apply to international air crews will be amended.
International tax reform
One of the most important stories in the lead up to the Budget was the historic decision to join the OECD agreement on the future of corporate taxation. While already extensively reported that Ireland signed up to the two-pillar OECD agreement last Friday, it remains headline news given Ireland’s long-standing 12.5% rate.
The consensus for an effective 15% tax rate for businesses with turnover in excess of €750 million and the guarantee that Ireland can continue to offer a 12.5% trading rate for all other companies was an important achievement for Ireland.
The comments from the Minister in today’s Budget reiterate the long term certainty that this agreement will provide to Irish and FDI businesses. Ireland will remain a highly attractive location for FDI investment compared to peer countries due to our overall offering to inward investment including our highly educated and dynamic workforce and strong existing FDI community.
The full impact of the OECD agreement for individual businesses will need to be assessed in the coming months to include the further detail that will be provided in relation to the operation of the OECD agreement as well as possible US tax reform proposals.
Minister Donohoe re-emphasised the Government's commitment to tackling climate change, noting that future generations “deserve action” from the leaders of today.
While certain measures, such as the increase in carbon tax, had been flagged in previous budgets, there were a number of positive developments in Budget 2022 such as:
- The introduction of a tax relief for households selling excess power to the grid;
- Establishing a greener VRT system;
- Extending the €5,000 VRT exemption for battery electric vehicles; and
- The extension and tailoring of the existing accelerated capital allowance regime for energy efficient equipment.
The Government has also committed to using funds generated from Carbon Tax to invest in a “nationally progressive social welfare retrofit programme” and to help combat fuel poverty to ensure a just transition.
The Government's commitment to further developing the area of sustainable finance through the launch of Ireland's Sustainable Finance Roadmap on Monday is a welcome development.
The Budget confirmed the well flagged introduction of the interest limitation and reverse hybrid rules as mandated under the EU Anti-Tax Avoidance Directive. Separate to these central items, there were also other measures announced that will be important for the sector.
From an investment fund perspective, there will be an expansion of the existing Employee Investment Incentive Scheme to a broader range of investors while also extending the scheme for a further three years.
The bank levy has been extended for a further year, with a review of the scheme to be completed in the next year.
Property and Housing
In line with recent years, property measures announced in Budget 2022 are focused on increasing housing supply. The Government has committed to extending a number of existing measures like the Help To Buy Scheme and the tax relief for pre-letting expenditure for private residential landlords.
Budget 2022 underpins the Government’s commitment to providing housing supply with the commitment of €2.5 billion of capital funding to support the delivery of 9,000 social housing units next year. A further €174m of exchequer funding has been allocated to deliver 4,000 affordable homes during 2022.
€50m has been allocated to service sites and refurbish property in towns and villages and increase the number of owner-occupier developed apartments.
There were no significant stamp duty changes announced as part of Budget 2022.
The Minister announced the introduction of a new zoned land tax which will apply to owners of serviced, undeveloped land which has been zoned for residential use or for a mix of uses, including residential use. A 3% tax will apply and will be based on the market value of the land. A two-year lead time will apply to lands zoned prior to 1 January 2022 and a three year lead time will apply to lands zoned after 1 January 2022.
This new zoned land tax will replace the ‘vacant site levy’ which is currently administered by local authorities. This tax aims to incentivise those who own serviced and undeveloped sites, that are zoned for residential or mixed use, to make them available and bolster supply.
Budget 2022 was intended to “set the course” for further economic recovery. For entrepreneurs, the domestic business community and SMEs, Budget 2022 includes welcome measures that will help to retain and create jobs. For citizens, it aims to ease the cost of living and consolidate our economic recovery from COVID-19. In terms of steering the country towards a greener future, there were arguably some missed opportunities.
Overall, the Ministers indicated they will spend where necessary and appropriate to ensure that Ireland has a brighter, better future and making sure that the budgetary inflows and outflows are appropriate given the overall fiscal landscape.
PwC is here to help you understand what Budget 2022 means for you and your business.