Ireland has increased the rate of stamp duty for non-residential property sales by 1.5% in the Irish Budget, effective immediately
The new 7.5% rate came into effect from Tuesday 8 October and is targeted at commercial property investors, marking the second year in a row where the government has hiked the rate. The stamp duty increase is expected to raise €141m (£126m) a year from 2020. There will be no changes to stamp duty on private residential sales.
This will be subject to transitional arrangements so that ongoing transactions can be completed under the existing 6% rate which will apply to transactions finalised before 1 January 2020 where a binding contract existed prior to Budget day (8th October 2019).
Consequential amendments will also be made to the legislation relating to the repayment of stamp duty where the land involved is subsequently used for residential development, so as to ensure that the rate of stamp duty chargeable after a full refund remains at 2%.
In addition, stamp duty at the rate of 1% will be applicable where a scheme of arrangement involving a so called ‘cancellation scheme’, in accordance with part 9 of the Companies Act 2014, is used for the sale of a company.
Finance minister Paschal Donahue TP said: ‘I have decided to increase the rate of stamp duty applicable to non-residential property by 1.5 per cent with [immediate] effect.
‘The commercial property market continues to perform strongly and I expect that this increase can be borne by the sector without any significant impact. There are long-standing relief measures which should mitigate the increase in certain circumstances. Normal transitional arrangements will apply for transactions in process.’
Describing the budget as 'overall a safe and conservative budget', RBK taxation partner, Mairead was surprised by the stamp duty increase. ‘This reflects a second successive year of increases to the non-residential stamp duty rate, a cumulative increase of 5.5% over the two Budgets, the stated rationale being that the commercial property market continues to perform strongly. Whilst any increase in the rate of stamp duty was largely opposed by the various sectors in the run up to the Budget, notwithstanding that there will be an allowance for some transitional measures relating to binding contracts as was the case with the previous rate increase,’ O’Grady said.
During the Budget speech, Donahue also confirmed that existing corporate tax rates would be maintained. The Irish economy is heavily reliant on corporate tax revenues from a handful of major US multinationals, including Apple, Google, Amazon and Microsoft, and any reduction in corporation tax revenue from the largest multinationals based in Ireland could knock €5bn out of the Irish coffers, according to research undertaken by the Irish tax office into corporate tax revenues, and released with 2019 Budget papers yesterday.
Donahue said: ‘Earlier this year, I commissioned an independent review of the Special Assignee Relief Programme (SARP) and the Foreign Earnings Deduction (FED). The review confirms that the policy rationale for the existence and continuation of both is strong,’ confirming that he would be extending SARP and FED until the end of 2022.
During the Budget speech, the finance minister flagged Brexit as a major concern, confirming that the Irish government had set aside €200m for next year for staffing and infrastructure needs, regardless of the outcome of negotiations.
In the event of a No Deal, €650m in contingency funding will be made available to support affected sectors with €220m to be released immediately.
‘Our central scenario is for a No Deal Brexit. This means that we must increase the level and range of supports to ensure that our economy is protected,’ said Donohoe.
‘That is why I am announcing a package of over €1.2bn, excluding EU funding, to respond to Brexit. This package is in two parts. In the first part I am making approximately €200m in Brexit expenditure available next year. I am allocating this across a number of departments and agencies to increase the level of staffing, upgrade infrastructure at our ports and airports and invest in information technology (IT) and facilities management. This is to ensure we are ready for Brexit, whatever form it takes.’
A number of measures for business came into effect immediately, including changes to the employment and investment incentive (EII) allowing for full income tax relief to be provided in the year of investment rather than splitting it over years one and four as has been the case up to now.
The annual investment limit for the incentive has also been increased to €250,000 and there will be a new €500,000 annual investment limit for those investors who invest in EII for 10 years or more. The legislation will provide that these changes to EII will apply from today’s date.
There were also improvements to research and development (R&D) credits targeted at small and micro businesses. These included an increase in R&D credit from 25% to 30% for micro and small companies, and an improved method of calculating the limit on payable credit
Subject to EU State Aid approval, there will be a new provision to claim R&D tax credit on qualifying pre-trading R&D expenditure before starting to trade. While pre-trading, the credit will be limited to offset against VAT and payroll taxes.
Some environmental measures to address climate change were also announced with an increase in carbon tax from €20 to €26 per tonne, while auto petrol and diesel duty was increased with immediate effect from 8 October, although other fuel rises were delayed until May 2020. A diesel rebate scheme for hauliers was introduced and the 1% diesel surcharge was replaced with a nitrogen oxide emissions-based charge. On company cars, the benefits in kind (BIK) zero rate on electric vehicles and VRT reliefs for hybrids was extended.