In the same week as the EU stimulus package was agreed, the Irish Government has announced a series of measures to support the Irish economy, assist business and promote employment in response to the COVID-19 pandemic. In total, the stimulus package is worth €7.4 billion, the largest cash injection into the Irish economy in history.
As will be outlined in the upcoming Financial Provisions (COVID-19)(No.2) Bill, the stimulus package contains a number of significant tax measures:
a) A tax credit for individual taxpayers. This will entitle them to a credit of up to €125 on expenditure of up to €625. There will be a minimum spend of €25. The expenditure must be on accommodation, food and non-alcoholic beverages. It will apply between 1 October 2020 and 30 April 2021. The tax credit can be claimed by submission of receipts using an app on mobile devices.
b) There will be a reduction in the general rate of VAT from 23% to 21%. This will come into effect in September for six months, and will impact a wide range of consumers and suppliers. It may require repricing of goods or services where originally priced as VAT inclusive amounts. The change is relevant for those in the financial services sector for whom VAT is an irrecoverable cost.
c) Companies will be entitled to immediately carry-back 50% of their 2020 trading losses against their 2019 corporation tax liabilities. This should provide a refund of corporation tax paid in respect of 2019 and an immediate cash flow boost. A similar relief will be introduced for self-employed individuals up to €25,000 in 2020 losses (and unused capital allowances).
d) The warehousing of tax liabilities will be placed on a statutory footing. This will allow for businesses affected by COVID-19 to delay payment of their PAYE and VAT debts in part, or in full for a set period with no interest or penalties. In addition, the interest rate applying to agreed repayments of all tax debt (where agreement has been reached prior to 30 September 2020) will be reduced to 3%.
e) The Help to Buy Tax Credit will be increased to €30,000 until 31 December 2020. This is intended to support the housing sector through encouraging the construction of new housing units.
The Stimulus Package should be viewed as a part of a broad array of Governmental supports for business. It is likely that further significant changes will be introduced in Budget 2021, which will be announced in October 2020.
In relation to the Budget, there is speculation that capital gains tax rates may be reduced in order to promote economic activity. In addition, it is likely that there will be further Irish tax reform arising from the international tax initiatives such as the EU Anti-Tax Avoidance Directives and the OECD BEPS project.
If you have any questions or require further information on the measures highlighted above, please contact a member of the Maples Group's Tax practice.
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