From reduced capital gains tax rates for angel investors to higher tax credits for R&D, this year’s Budget aims to deliver for business.
National budgets rarely get universal approval, and Ireland’s latest Budget 2024 announced by Government today (10 October) will be no exception. But as far as businesses are concerned, the latest measures including tax cuts, credits and simplification spell good news.
While the largest businesses on this island, a growing group of global multinationals, are gearing up for a hike in corporation tax from 12.5pc to 15pc as part of a broader OECD push, smaller indigenous businesses, start-ups and those who back them will benefit from Budget 2024.
So, whether you’re the owner of a small or medium-sized business, founder of a fledgling start-up looking to scale or an investor who wants to support Ireland’s growing ecosystem, here are some key takeaways from today’s Budget that will impact the course of your fiscal year ahead.
R&D tax credit goes up
As promised a month ago, Minister for Finance Michael McGrath, TD, said in his Budget 2024 speech that the Research and Development (R&D) tax credit – a crucial feature of Ireland’s corporation tax offering that helps it stay competitive – is going up from 25pc to 30pc.
“This will maintain the net value of the existing credit for those businesses subject to the new 15pc minimum effective tax rate, while also delivering a real increase in the credit to those smaller companies who will not be in scope of [the 15pc corporation tax],” McGrath said.
The amount to be reimbursed in year one under the R&D tax credit scheme is also being doubled from €25,000 to €50,000 to provide “valuable cash-flow support” to companies engaged in smaller R&D projects.
Ireland needs to increase funding by at least €2bn to catch up with other innovation-leading countries, according to a recent report on the state of R&D by the Industry Research and Development Group and KPMG.
Responding to this year’s Budget, Martina Fitzgerald, CEO of Scale Ireland, said that the increase in the R&D tax credit rate will incentivise research and development as well as spending in the start-up sector.
“We also welcome the pledge to look at simplifying state supports and reliefs which has been a key issue for our members,” she said. “It is vital that these schemes are fit for purpose and we welcome Minister McGrath’s commitment to look at this.”
More gains for angel investors
Angel investors, who play a crucial role in fostering innovation among start-ups and SMEs in Ireland, are set to benefit heavily from a reduced rate of Capital Gains Tax (CGT) – tax that is paid on the dividends from investments – of 16pc for individuals and 18pc through partnerships.
This means that angel investors investing in Ireland can get a reduced CGT rate for gains up to twice the value of their qualifying investment in innovative start-ups. However, in order to be eligible, an angel investor must hold a minimum of 5pc of the company’s shares.
“This provision limits the benefits to a select few who can make significant investments,” said Ciaran Gilsenan, All Island Director of HBAN. “Ideally, we would have liked a measure that provides tax benefits to all angel investors, ensuring a more inclusive approach.”
According to Gilsenan, “Budget 2024 represents concrete progress on key policies for Irish start-ups and investors alike. From the unprecedented targeted CGT relief for angel investors to the meaningful enhancements in the R&D tax credit scheme, the government has shown it’s not just listening but acting.
“As always, the devil will be in the details but we are encouraged by what Minister McGrath has said in his budget speech.”
A second key measure aimed at investors is an update to the Employment Investment Incentive Scheme (EIIS) for which the investment period has been standardised to four years to make the process of investing simpler.
Additionally, McGrath said he will be doubling the amount an investor can claim relief on for four-year investments to €500,000 to “help unlock more equity investment in smaller, early-stage businesses which are typically most in need of funding”.
“While there’s room for improvement to catch up with global benchmarks like the UK’s angel investor scheme for example and still complexity for entrepreneurs to secure relief states, this Budget lays strong foundations for a thriving entrepreneurial ecosystem,” Gilsenan said.
Promise of a simpler tax regime
One of the most persistent complaints from the business community in Ireland has been the complexity and lack of accessibility around the tax reliefs.
To that end, McGrath said the Government is establishing a Tax Administration Liaison Committee (TALC) subgroup to simplify tax reliefs and schemes.
“Tax reliefs by their nature are complex, and there are certain requirements that cannot be modified particularly due to EU State Aid and other international rules and considerations,” McGrath said.
“However, I am determined to ensure that all businesses, especially SMEs, know what they are entitled to claim and can access all appropriate schemes and reliefs.”
The subgroup will focus on identifying opportunities to simplify and modernise the administration of business supports, and its terms of reference will be agreed at the TALC and a report on the recommendations of the subgroup will be delivered next year.
In a further boost to SMEs, the Key Employee Engagement Programme (KEEP), which aims to improve the attractiveness of SME employment, has been extended until the end of 2025 as announced last year. The lifetime company limit for KEEP shares has also been raised from €3m to €6m per company.
This tax share option scheme allows employees to acquire shares at a future date and at a fixed price, under specific conditions, without paying tax.
Some analysts still have concerns around some of the measures announced today.
Daryl Hanberry, a partner and head of tax and legal at Deloitte, said that cost pressures from increased rates of PRSI and an increase in the national minimum wage will impact the business sector “disproportionately”. He also notes that the KEEP scheme needs to be more effective.
“There is a need for a further comprehensive suite of measures to support entrepreneurship and to encourage founders to retain ownership and to scale their businesses,” said Deloitte partner David Shanahan, adding there could be a lower rate of income tax on “certain qualifying dividends”.
“Another area for consideration would be a series of supports to encourage more companies to IPO and to retain their listings on the Dublin Euronext stock exchange,” he went on.
“A measure which could have an impact, as part of broader measures, would be the removal of stamp duty on listed shares.”
Scale Ireland chair Brian Caulfield also said that while the reduction in CGT for angel investors is a “welcome boost”, the ownership requirement of a minimum of 5pc is “problematic”.
“Very few angel investors reach that threshold. We hope to engage with the Minister to ensure this is addressed in the Finance Bill,” Caulfield said.
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Updated, 8.45am, 11 October 2023:This article was updated to include Ciaran Gilsenan’s most recent comments about Budget 2024. It had previously included comments made before the details of the budget were released.