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What the 2012 Budget changes Mean for Your Business


On 6 December 2011, the Irish Minister for Finance introduced the 2012 Budget. The Government was charged with the difficult task of taking EUR3.8 billion out of the economy, whilst at the same time supporting the creation of jobs and promoting growth. Of particular interest was the corporation tax rate, which remains unchanged at 12.5%, while the standard VAT rate was increased to 23%, with effect from 1 January 2012. Taxand Ireland takes a look at the tax changes and other budget provisions.

Other provisions in the budget will be clarified once the Finance Act 2012 is published. Below are some highlighted items which were introduced in the Budget.

R&D Tax Credit
There have been a number of enhancements to the R&D tax credit scheme as follows:

  • The first EUR100,000 qualifying R&D expenditure will be allowed on a volume basis as a tax credit while incremental expenditure over EUR100,000 will earn a credit as per the current scheme
  • The outsourcing limits for R&D activities to subcontractors or to third level institutions are to be increased to the higher of 5% or 10%, as appropriate, or EUR100,000
  • Companies can also use a portion of the R&D credit to reward key employees involved in the development of the R&D

Three Year Tax Exemption for Start Up Companies
The Corporation tax exemption for start up companies has been extended for the next three years to cover companies commencing new trades in 2012, 2013 or 2014

Foreign Earnings Deduction
A foreign earnings deduction will be introduced to aid export companies seeking to expand into emerging markets from Ireland. The deduction will apply where an individual spends 60 days a year developing markets for Ireland in Brazil, Russia, India, China and South Africa. Further details will be supplied in the Finance Act.

Capital Allowances on Renewable Energy Generation
The qualifying period for tax relief for corporate investment in certain renewable energy projects is to be extended to 31 December 2014. The relief is in the form of a tax deduction up to EUR12.7 million for any money invested in qualifying renewable energy companies.

Tax on Savings Interest
Tax on Savings Interest (Deposit Interest Retention Tax) has increased from 27% to 30% on ordinary deposit accounts and from 30% to 33% on long term deposit accounts. The increased rates apply from 1 January 2012.

Other Provisions

  • Stamp duty on the transfer of non-residential property has been reduced from 6% to 2% from 7 December 2011
  • Capital acquisitions tax and capital gains tax has been increased from 25% to 30% on 7 December 2011
  • The existing employer PRSI relief of 50% on the amount of employee contributions to pension schemes was removed on 1 January 2012
  • An interim charge of EUR100 will apply to each household in Ireland as a temporary measure until a property tax system is enacted in 2014
  • A Special Assignee Relief Programme is to be introduced to attract key people to Ireland to help expand established multinational and indigenous companies

Your Taxand contact for further queries is:
Conor Bradbury
T. + 353 1 6395 214

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