Ireland should be the go-to location in Europe for setting up a business, according to a pre-Budget submission from PwC.
For example, family and privately owned Irish businesses employ more than 1m people in over 170,000 businesses right across the country.
“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”
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.
Private Business Heatmap
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 4th 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 & skills and technology & infrastructure.
“Our 2023 Pre-Budget Submission 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,” Nicola Quinn, Tax Partner, PwC Entrepreneurial & Private Business Practice, explained.
“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 a longer-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%/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/inheritance tax applying with any balance of tax being spread over a longer 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 & 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.”