Tax Tips & Dates

04 October 2011

Ireland has one of the lowest corporate tax burdens

Ireland has one of the lowest corporate tax burdens of any major economy, reveals research from UHY, the international accounting and consultancy network.
Ireland has the third lowest corporate tax burden of the 21 countries listed and is the second lowest of all the EU countries listed (behind Estonia). 
UHY tax professionals studied tax data in 21 countries across its international network, including members of the G8 as well as key emerging economies. Tax professionals in each country calculated post-tax profits for businesses making annual statutory pre-tax profits of US$100,000, US$1 million and US$100 million.  
UHY explain that, when analysing highly profitable businesses (i.e. those making a statutory tax profit of US$100 million per annum), the same business in Ireland will pay less than half as much tax (US$12.5million) as the equivalent business in the UK (US$26 million).

The G8 countries
Corporate tax payable per country in US dollars (highest to lowest)

Tax payable				Tax payable				Tax payable
(assuming pre-tax profit of US$100,000)				(assuming pre-tax profit of US$1 million)				(based on statutory pre-tax profit of US$100 million)
Germany	$32,450	32%		Japan	$419,900	42%		Japan	$41,990,000	42%
Italy	$31,400	31%		USA	$340,000	34%		USA	$35,000,000	35%
Japan	$31,106	31%		France	$333,333	33%		France	$34,397,363	34%
France	$23,350	23%		Germany	$324,500	32%		Germany	$32,450,000	32%
USA	$22,250	22%		Italy	$314,000	31%		Italy	$31,400,000	31%
Russia	$20,000	20%		UK	$238,337	24%		Canada	$29,187,384	29%
UK	$20,000	20%		Canada	$223,781	22%		UK	$26,000,000	26%
Canada	$15,500	16%		Russia	$200,000	20%		Russia	$20,000,000	20%

 

Alan Farrelly, partner of UHY Farrelly Dawe White Limited in Ireland, a member firm of UHY comments: “Ireland has kept corporate taxes low and has successfully enticed large multi-national businesses such as Microsoft and Google to place their headquarters here and to remain here. The low 12.5% tax rate applies to all businesses – irrespective of whether their pre-tax profit is US$100,000 or US$100 million.”
“The Government has successfully resisted pressure so far to increase the corporate tax rate as part of the IMF/EU bail out. Many businesses see this as a key part of the country’s competitiveness.”
“The need for Ireland to keep its corporate tax rate low is illustrated by changes that the UK made to its tax code to attract WPP back to the UK.”
Alan Farrelly adds:  “Companies are increasingly mobile and are able to switch tax domicile with relative ease. This has put governments in a quandary, as they seek to boost tax revenues in order to shore up public finances. Many countries have opted to resolve this problem by increasing personal taxes while reducing corporate tax rates. Once a major economy slashes corporate tax rates, however, it puts pressure on others to take similar measures to remain competitive.”

All 21 UHY countries surveyed
Corporate tax payable per country in US dollars (highest to lowest)

The UHY research reveals that highly profitable businesses, (i.e. those making a statutory tax profit of US$100 million per annum), will pay over three and half times more tax  in the highest taxing country Japan – (US$41,990,000) than the lowest taxing country Ireland (US$12,500,000).

The calculations assume all exceptional gains and costs have been taken into consideration, as well as things like interest, the cost of stock options and goodwill amortisation. The tables (above) rank countries from the highest tax burden first to the lowest tax burden last.

 

 

16 September 2011

The Stepping Stones to a Family Succession in a Tax Efficient Manner

Running a family business successfully means reaching the right balance between the needs of the business and those of your family. This can be particularly difficult when you're planning how the business will carry on after you step down from managing it. The key to a successful management transition is effective succession planning.
It has never been such a good time to pass on wealth and assets to the next generation with the unprecedented fall in value of business and property related assets. Combining this with the generous tax reliefs that are currently available, it has never been a better time to consider succession planning.
While people seem very conscious that various taxes are triggered on succession, some are not aware of the very generous tax reliefs that are currently available which may allow them to transfer their assets to the next generation efficiently in a tax efficient manner.
The recent Commission on Taxation (the “Commission”) Report has proposed that many existing tax reliefs be substantially curtailed. It would be unwelcome if the Government implements the Commission’s proposals. In light of this, those that are considering succession planning in the near future may well want to bring forward these plans in advance of the December budget. 
The key taxes to be considered in a business transfer are Capital Gains Tax (“CGT”) for the donor, and Capital Acquisitions Tax (“CAT”) and stamp duty for the beneficiary.

CGT

No charge to CGT arises on transfers arising on a death.  However, in the context of transfers during a lifetime, capital gains tax at a current rate of 25% will apply. However, the resulting CGT can be significantly reduced or even eliminated by virtue of Retirement Relief.    This relief is the cornerstone of any tax planning for transferring a business to the next generation.  
Retirement Relief

Retirement relief is a relief from CGT on the transfer of business assets. Like any tax relief there are conditions, but this relief is achievable and an added benefit is that the  individual does not need to actually retire.  The fundamental condition relating to this relief is that the individual be aged 55 years and makes a disposal of his/her business or part of the business, of which he or she have been a director for 10 years, ( of which needs to be a working director) and which he or she has owned for 10 years.

Assets subject to the relief, relate to qualifying businesses, shares in a family company or a farm.
The Commission on Taxation report has recommended that retirement relief be limited to asset values up to €3 million on transfers to children (or qualifying nephews/nieces). Any excess over the €3 million would be liable to tax.
CAT

Capital acquisitions tax is a tax on the recipient of gifts and inheritances.  Gifts between spouses are exempt.  The tax-free thresholds for gifts and inheritances are index linked.  For 2011, they are as follows:

• Group A - €332,084: where the beneficiary is the child of the disponer. 

 

• Group B - €33,208: where the beneficiary is a parent, sister or brother, niece or nephew or grandchild.

• Group C – €16,604: others.

Amounts in excess of the tax-free thresholds are subject to a current rate of CAT of 25%.
In relation to CAT, a relief is available which treats gifts and inheritances of business assets (“Business Relief”) more favourably than other assets. The relief reduces the taxable value of business assets by 90% where the relevant business property has been owned by the donor for a qualifying period. The relief is withdrawn if the property is sold within six years and is not replaced by other qualifying property or ceases to be used for business purposes. Equivalent relief is available for agricultural property (“agricultural relief”).

Stamp Duty

No charge to stamp duty arises on inheritance.  In the case of lifetime transfers, however, even in the case of gifts, stamp duty applies on the market value of the asset being transferred.  The rate of stamp duty on a transfer of shares is 1%.  In the case of land, the rate of stamp duty varies but there is a relief for transfers between blood relatives which can result in a 50% reduction in the rate. This does not apply to share transfers.

Conclusion

The Government has indicated that the recommendations of the Commission are more likely to be introduced over the longer term, rather than the shorter term. However, we are concerned that some restrictions could be implemented as early as in the forthcoming Budget, December 2011, to raise additional revenue.
For this reason, we recommend that clients take advantage of the reliefs currently available at the earliest possible date. In addition, the market value of assets at the date of transfer is relevant for tax purposes, and given the current depressed state of the market, now appears to be an opportune time to make gifts of qualifying assets at a low value. CONTACT US TO DISCUSS ASAP.

 

24 June 2011

Non Principal Private Residence (NPPR) - Annual Payment Reminder

The Local Government (Charges) Act 2009 introduced a €200 annual charge on non principal private residences, payable by the owners to the local authority in whose area the property concerned is located.

This charge is levied on the following main types of properties:
Private rented property
Vacated property (except new but unsold residences)
Holiday homes

Collection of the Non Principal Private Residence Charge for 2011 commenced on the 31st March 2011.
Please note that you must pay the NPPR charge for 2011 on or before the 30th June 2011 to avoid late payment fees. Payment can be made online at www.nppr.ie

 

13 June 2011

Ireland has one of the highest tax burdens for high earners

Research by UHY, the international accounting and consultancy network

Ireland has one of the highest tax burdens for high earners of any major economy, reveals research from UHY, the international accounting and consultancy network.
Ireland is ranked 18th out of 19 countries according to how much tax it takes from high earners wages. The table (below) ranks countries from lowest tax burden first to the highest tax burden last.
UHY studied tax data in 19 countries across its international network, including members of the G8 as well as key emerging economies. Each country was asked to calculate the ‘take home pay’ for low and high income workers taking into account personal taxes and social security contributions.
While Ireland was ranked 18th out of 19 for taxes on high earners, it ranked 2nd out of 18 for taxes on low earners. High earners were defined as workers earning USD$200,000 per annum while low earners were defined as workers earning USD$25,000 per annum.
For a person earning USD$200,000 just one country – the Netherlands – takes more in tax and social security contributions than Ireland. Only Dubai - which does not tax income at all – takes less tax than Ireland from an employee earning USD$25,000.
The G8 countries
Net pay after tax and social security per country in US dollars (from highest to lowest)

 

Alan Farrelly , partner of UHY Farrelly Dawe White Limited, Irish member firm of UHY comments: “While Ireland has kept corporate taxes low to entice multinational businesses, the heavy tax burden on high earners is at odds with that policy. Companies look at personal tax rates when choosing where to locate. If the tax burden is too high, they may struggle to attract the necessary talent.”
“The Government is resistant to the idea of increasing corporate tax rates, but with austerity measures on the horizon it will need to consider whether high earners can shoulder a greater tax burden without damaging the competitiveness of the economy. It is an uncomfortable balancing act.”
“Achieving a more sustainable fiscal position will be difficult without raising taxes, but higher taxes are likely to hinder economic growth. Many high earners will be highly skilled and they are usually very mobile. Ireland risks a brain drain if high earners are taxed significantly more than competitor countries.”
All 19 countries surveyed by UHY
Net pay after tax and social security per country in US dollars (from highest to lowest)

 

For high earners the difference in the amount of tax collected between the highest taxing country (Netherlands) and the lowest taxing (Russia) is USD$62,547, which means that a person earning USD$200,000 per annum in the Netherlands would pay nearly two and a half times (240%) more tax than the equivalent person in Russia.
The UHY research  reveals that (excluding Dubai) for low earners the difference in the amount of tax collected between the highest taxing country (India) and the lowest taxing (Ireland) is USD$5,274, which means that a person earning USD$25,000 per annum in India would pay nearly five times more tax (496%) than the equivalent person in Ireland.
Roisin Duffy, Tax Director of UHY Farrelly Dawe White Limited, Irish member firm of UHY comments: “Low earners in Ireland pay less in tax than any of the countries we studied apart from Dubai. With public sector job cuts biting hard and unemployment around 15%, it is vital that the Government does all it can to make work pay. Fortunately, we are some way ahead of our competitors on this measure.”