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PwC launches pre-Budget submission 2023 to support Irish private enterprise – Supporting Sustainable Growth

27 June, 2022

  • Helping Irish private and family businesses weather the current challenges and grow sustainably
  • Measures that have a strategic and long-term impact to incentivise investment and support entrepreneurs – making Ireland an entrepreneur's location of choice to set up a business
A photo of a man in a workshop texting on his smartphone.

PwC today publishes its pre-Budget submission 2023 to support Irish private enterprise. Developed in conjunction with the Family Business Network, it focuses on key tax initiatives to support home-grown Irish business, the backbone of our economy. For example, family and privately owned Irish businesses employ more than 1 million people in over 170,000 businesses right across the country.

Against a background of intense uncertainty and disruption, the proposals are aimed at supporting the Irish indigenous sector in terms of growth, cash flow, skills and jobs while also improving the competitiveness and sustainability of the sector.

The tax changes in this year's pre-Budget submission are also influenced by the findings from PwC's recent EMEA Private Business Heatmap ("the Heatmap"), scoring Ireland 14th out of the 34 European countries ranked. Scope for improvement was identified in Ireland's strategy to support growing businesses which is addressed in this submission.

Overall, while Ireland scored fourth place on the Heatmap for corporate tax, the country was ranked 19th for its income tax rate. Ireland's tax regime needs to provide greater support towards the growth of indigenous businesses, not to mention their entrepreneurial founders. Other areas for improvement identified by the Heatmap were in the areas of Environment, Social and Governance (ESG), education and skills, and technology and infrastructure.

Speaking at the launch, Nicola Quinn, Tax Partner, PwC Entrepreneurial and Private Business Practice, said: "Our pre-Budget submission 2023 for Private Enterprise sets out tax changes to support Irish private businesses in dealing with current challenges (such as staff shortages and increased costs), as well as developing sustainable businesses that will flourish into the future".

"In particular, the tax changes proposed should also help Ireland improve its overall "score" on PwC's 2022 EMEA Heatmap and have a dual focus. Firstly, measures that are more strategic and long term to incentivise investment and to support entrepreneurs – making Ireland an entrepreneur's first and only choice to set up a business. Secondly, to close the large gap for Ireland's personal taxation rates vis a vis international standards. Many of the suggested measures (particularly in the areas of the taxation of gains and employee involvement in the ownership of a business) speak to addressing that gap".

The initiatives proposed are within four key categories: employment supports, growth and investment, building a sustainable Ireland and business succession, transition and other priorities.

Overall, key measures proposed are:

  • Increase tax bands and credits as well as travel and subsistence rates to be at least in line with current inflation.
  • Reduce employers PRSI so that businesses can partially offset increased salary costs.
  • Introduce incentives in the form of reduced tax costs for Irish businesses to let properties to their staff, either on a short-term or long-term basis.
  • Improve the share based incentives to make them fit for purpose for private businesses.
  • Reduce interest on late payment of tax across all tax heads to 3% (currently 8% or 10%).
  • Reduce the standard rate of VAT from 23% to 21%.
  • Extend the 9% VAT rate for the hospitality sector to 31 December 2024.
  • Introduction of capital allowances for remote working along with improvements to the Employment Investment Incentive Scheme (EIIS) scheme and the R&D tax credit regime.
  • A reduction of the Capital Gains Tax (CGT) rate on non-property investments from the current rate of 33% to 20% to support investment by private businesses and entrepreneurs into private businesses.
  • Measures to incentivise both private individuals and the private business sector to invest in green properties, for example, introduce additional 'green' tax reliefs in respect of CGT liabilities arising on the disposal of properties that have been retrofitted.
  • Introduction of tax reliefs and incentives in the renewable energy space to encourage investment in this area.
  • Raise the Capital Acquisitions Tax (CAT) Band A threshold (including all gifts and inheritances from parents to their children) to €500,000, from €335,000.
  • Introduce mechanisms to facilitate the transfer of businesses to the next generation without incurring upfront punitive tax costs; e.g., an 'upfront instalment' of the gift or inheritance tax applying with any balance of tax being spread over a long-term period of at least 10 years.
  • Amendment to the revised Entrepreneur Relief whereby dividends would fall within the remit of being taxed at 10%.

Colm O'Callaghan Tax Partner, PwC Entrepreneurial and Private Business Practice, concluded: "While there are many priorities, it is really important that the Government specifically focuses on helping the private business sector in the upcoming Budget. Irish private businesses are critically important to our economy and these firms need to have the capacity not only to support their employees with inflationary pressures but also to have sustainable and competitive businesses into the future".

"A clear focus for support is also to ensure that Ireland continues to be a great location for private business. Being competitive is critical and measures in the Budget that enhance Ireland's attractiveness as a location for private investment, from a corporate and an individual perspective, would be very welcome".

Summary of the key measures proposed

1. Employment Supports

Attracting and retaining talent, reskilling and preparing their workforce for the digital future continue to be key areas of focus for many private business owners.

  • Income Tax bands and credits should be increased significantly, at least in line with the current rate of inflation.
  • Increase the Small Benefit Exemption for employees from €500 per annum to €1,000 per annum.
  • A reduction or rebate of up to 50% of employers' PRSI for an initial 12-month period to help relieve businesses against the cost of increasing salaries and supporting employees.
  • Increase the civil service travel and subsistence rates to account for inflation associated with fuel, food and accommodation.
  • Fully exempt from all Income Tax benefits in relation to the provision of providing certain public transport benefits to employees (such as the Taxsaver Commuter Ticket Scheme).
  • Introduction of incentives within the private business sector to let properties to staff, either short or long term. Such incentives include taxing rents received by the corporate employer from their employee at 12.5% (as opposed to the current 25% rate of corporation tax on rents), employers receiving additional deductions in respect of the purchase or retrofit of 'green' properties, additional tax reliefs available to employees that let retrofitted properties from their employer (e.g. additional income tax credits, reduced BIK where less than market rent is paid to the employer).
  • Changes in relation to the taxation of share option schemes, particularly the differences in treatment between short and long options.
  • Introduction of CGT treatment on share buybacks of Key Employment Engagement Programme (KEEP) shares.
  • Introduction of a new scheme for private business owners to sell their business to an Employee-Owned Trust (EOT) and the availability of CGT exemption on the transfer.

2. Supporting growth and investment

While the fundamentals of our economy remain strong such as employment, FDI inflows, exports and fiscal revenues, there is currently a geopolitical crisis with supply chain disruptions and escalating inflation. Measures aimed at stimulating growth and investment in private businesses need to be monitored and targeted to protect Irish businesses in so far as possible against the significant inflationary and global supply challenges that are likely to endure into 2023.

  • A reduction in the interest rates in relation to the late payment of tax to 3% per annum across all tax heads to aid business cash flow.
  • Monitoring of the qualifying conditions and repayment timelines in relation to the Tax Debt Warehousing Scheme.
  • Review of the commercial rates regime, engaging all stakeholders, with the objective of establishing a replacement regime that is fit for purpose in this digital age.
  • Reduce the standard rate of VAT from 23% to 21%.
  • Increase both the VAT registration and cash-receipts basis of accounting thresholds.
  • Extend the 9% VAT rate for the hospitality sector to 31 December 2024.
  • Where possible reduce customs rates on the importation of key building materials used for the development of residential properties.
  • Introduction of a once off grant, similar to that currently in operation in Portugal (known locally as the 'MAIS rural employment grant') whereby employees would be offered a grant to help with the costs of relocating to rural towns and villages of Ireland.
  • Introduction of a 130% accelerated super capital allowance deduction in year 1 to write off expenditure on IT equipment and software for employees to facilitate continued remote and hybrid working from home where possible.
  • Reduce the CGT rate on non-property investments from the current rate of 33% to 20% in order to support investment by private businesses and entrepreneurs.
  • There is an opportunity to implement legislative changes in the area of Employment Investment Incentive Scheme (EIIS). Such changes could include an enhancement by allowing CGT loss relief if the investment fails, rectify provisions that are a relic of the BES legislation (e.g. inability to use certain holding companies) and more recent provisions that have given rise to some unintended consequences (e.g realised investment gains liable to income tax rather than CGT).
  • Correction of an anomaly which exists in the legislation when assessing whether an individual is "connected" with the EIIS company (an individual cannot claim EIIS relief if this happens).
  • R&D Tax Credit Regime improvements - increase in the rate of R&D tax credit, broadening of expenditure base (e.g. rent, facility costs etc.), increase in subcontractor and university caps, an improvement to the regime to provide for a fully monetised credit for which payment can be accelerated from the current three years to one year, ability to utilise the credit to reduce other taxes including employment taxes and VAT. Pre Approval process for new claimants below a certain scale.

3. Building a sustainable Ireland

Ireland has committed to a legally binding target of net zero greenhouse gas emissions no later than 2050 and a reduction of 51% by 2030. In this regard, changes and incentives are needed to ensure that Ireland meets its targets.

  • The launch of further information and support will be needed on a continuous basis to aid the SME sector in managing the transition to net zero.
  • Provision of funding and support from the Government to future proof businesses and to be encouraged to invest in business which supports the green economy.
  • Introduction of an additional corporation tax deduction for staff costs where the employees have been hired to support the business's sustainability agenda or where selected employees are completing an upskilling programme that is contributory to the green economy.
  • Reintroduction of the relief for investment in renewable energy generation (s486B TCA 97) which ceased in 2014 in order to encourage corporate investment.
  • Extend the CGT participation exemption (S626B TCA 1997) to early stage renewable energy projects.
  • Provide greater certainty as to what qualifies for CGT participation exemption (S626B TCA 1997), with particular reference to capital projects in the area.
  • Put the entitlement of claiming capital allowances on grid connection costs beyond doubt.
  • An increase in the pre-trading expenditure window from three to seven years.
  • Introduce measures to encourage a market for second hand electric vehicles by way of tax incentives.
  • Introduce a time limited 'super deduction' (up to 130% of capital expenditure incurred) until 31 December 2023 for the purchase of all plant and machinery and capital expenditure on buildings or factories that receive a recognised accreditation for overall energy performance.
  • Introduce the ability to monetise capital allowances in respect of qualifying energy efficient assets (e.g. where company is loss making).
  • Continued improvements to capital allowances for energy efficiency.
  • Introduce tax incentives for farmers and landowners to make their land available to deliver renewable energy.
  • Introduction of measures to incentivise both private individuals and the private business sector to invest in green properties. Some suggested measures in this regard include additional 'green' tax reliefs in respect of Capital Gains Tax (CGT) liabilities arising on the disposal of properties that have been retrofitted.
  • Introduce a reduced rate of stamp duty, or indeed an exemption from stamp duty, where a retrofit of a second-hand property has taken place within a specified time period after the initial purchase of the property.
  • Introduce a "retrofitting scheme" (incorporating associated upskilling) aimed at modernising Ireland's housing stock.
  • Tailor the existing Living City Initiative measures to help cope with projected urban population increases in the decades to come. We propose a consultation process with relevant stakeholders to explore the possibility of expanding the Special Regeneration Areas (SRAs) that currently qualify for this relief, expanding the definition of a qualifying residential property.

4. Business succession, transition and other priorities

Succession planning and planning for future exit strategies continue to be high on the agenda.

  • Raise the Capital Acquisition Tax (CAT) Band A threshold (including all gifts and inheritances from parents to their children) to €500,000.
  • Remove anomalies from CGT Retirement Relief.
  • Remove the arbitrary €3 million cap on the value which can qualify for CGT Retirement Relief on the transfer of shares for those aged 66 years of age and older for a period of two years with a further review to take place at that time.
  • Increase the retirement relief age from 66 to 70.
  • Remove cash as a non-qualifying asset in trading businesses for CAT Business Relief purposes until and unless the cash is invested in non-qualifying assets.
  • Allow CAT Business Property Relief on active property rental businesses.
  • Introduction of mechanisms to facilitate the transfer of businesses to the next generation without incurring upfront punitive tax costs e.g. an 'upfront instalment' of the gift or inheritance tax applying with any balance of tax being spread over a long-term period of at least 10 years.
  • Increase the lifetime limit for Entrepreneur Relief to €5 million.
  • Expand the Revised Entrepreneur's Relief provisions under S597AA TCA 1997 to include dividend income for founders (provided the existing conditions to qualify for this relief are met).
  • Support for the Irish audio visual and gaming sectors by way of review and enhancement of Ireland's creative tax reliefs.
  • Extension of Film Relief beyond the current expiration date of 31 December 2024.

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