This year, key measures for businesses operating in Ireland were announced. The increase in the R&D tax credit to 30 percent as well as a scheme of business supports worth €250 million (of which more detail is to be provided) were welcome. While it may seem like Minister McGrath has made limited announcements on the corporation tax front, legislation implementing the monumental Pillar Two rules will be included in Finance (No. 2) Bill 2023 and will be wide-ranging and complex and will be the most significant changes to Irish tax legislation in the history of the State.
Minister McGrath also reaffirmed the Government’s commitment to introducing a participation exemption for foreign sourced dividends. This is part of a territorial system of taxation which the Institute has been calling for in successive Pre-Budget Submissions. This commitment will be most welcomed by Irish businesses.
Research and Development (R&D) Tax Credit
The R&D Tax Credit remains one of the most successful tax expenditures in Ireland. In 2021, 1,629 companies claimed an R&D Tax Credit totalling €753 million. The R&D Tax Credit is calculated as a percentage of qualifying expenditure. In his speech, Minister McGrath announced an increase in the rate from 25 percent to 30 percent.
In addition, there is a payment limit on the amount which can be paid to a claimant in the initial year of a claim. The Minister announced an increase in this threshold from €25,000 to €50,000.
In our response to a Government consultation on the R&D Tax Credit in 2022, we recommended the acceleration of the payment of tax credits. We also recommended that the Government activate measures to introduce a 30 percent rate for the credit.
Accelerated Capital Allowances – Energy Efficient Equipment
The Accelerated Capital Allowances (ACA) scheme for Energy Efficient Equipment (EEE) is being extended for a further two years to 31 December 2025. In our Pre-Budget 2024 Submission, we recommended extending this measure as it is a particularly useful measure in encouraging businesses to choose EEE, where possible. ACAs are net neutral in terms of overall cost to the Exchequer.
Section 481 Film Relief
Film relief provides for a corporation tax credit for the qualifying costs of certain audiovisual productions. The cap on qualifying expenditure is being increased to €125 million.
Employment Investment Incentive (EII)
The EII scheme provides for income tax relief for investment in qualifying small and medium sized businesses. From 1 January 2024, all investments made will be subject to a four-year holding requirement and the limits on investments which qualify for relief is to increase to €500,000.
In our Pre-Budget 2024 Submission, we noted that amendments to the EU General Block Exemption Regulation require further updates to the EII scheme. Minister McGrath announced that the necessary amendments will be included in the Finance Bill, once published.
Key Employee Engagement Programme (KEEP)
The Minister announced that State-Aid approval has been received for the 2022 amendments to the KEEP scheme. The amendments include the extension of the scheme to the end of 2025 and a doubling of limit for the total market value of issued but unexercised qualifying share options from €3 million to €6 million.
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