Ireland’s outdated tax system for share options is hurting the country’s entrepreneurial potential, a leading authority on tax told the Irish Tax Institute’s AGM today (3 September).
It is one of the curious anomalies of the Irish tax system. While capital gains tax perks are weighted towards a broken and defunct construction industry, promising companies in the tech and pharma industries are unable to reward loyal, dedicated and talented staff.
This is leading to a situation where companies supported by the State are establishing offices in Northern Ireland in order to compete for talent, lured by more visionary schemes like the UK’s EIS/SEIS.
‘All the latest indicators show Ireland slipping down the entrepreneurial ranks instead of going up’
– MARY HONAHAN
Sources in the start-up community in Ireland warn that a trickle of start-ups heading north of the border may very quickly turn into a flood.
The tax treatment of entrepreneurs in Ireland was labelled ‘absurd’ in April by the newly-elected president of the Certified Public Accountants in Ireland (CPAI), Brian Purcell.
Ireland’s tax treatment of entrepreneurs should be a Budget issue
Today the Tax Institute’s incoming president and tax partner at PricewaterhouseCoopers, Mary Honohan, said tax measures to help entrepreneurs raise capital and share option measures to ensure they can hire new employees are priority issues for start-ups and expanding businesses in the forthcoming budget.
Honohan said Ireland’s policies are not attractive enough for those who take real risks by putting money into start-ups.
She said that more than €90bn is held on deposit in Ireland (at end April 2015). If even a small percentage of this capital was invested in small, high-potential businesses, it would make a difference to entrepreneurs.
“All the latest indicators show Ireland slipping down the entrepreneurial ranks instead of going up”, she said. “Just this week we have seen evidence of that with a new report on EU entrepreneurial activity and Ireland is headed in the wrong direction.”
Honahan said that when it comes to raising capital Ireland’s only real tax measure to encourage third party investment, EII, (Employment and Investment Incentive) has become so restrictive that the value of funds invested in entrepreneurs through this measure has actually halved since 2011.
She said this is in stark contrast to the two main entrepreneur-focused tax measures in the UK, which grew by more than 90pc and 40pc respectively between 2012 and 2014.
‘Ireland’s capital gains tax environment is immensely restrictive and is exacerbated by the availability of a simpler, clearer and more attractive relief in the UK’
– MARY HONAHAN
“Our policies are not attractive enough for those who take real risks by putting money into start-ups. Over €90 billion is held on deposit in Ireland (at end April 2015). If even a small percentage of this capital was invested in small, high-potential businesses, it would make a difference to entrepreneurs.”
Honohan stressed that the problem was not just about getting funds into entrepreneurial activities in Ireland but also about rewarding investors when companies are sold.
“Ireland’s capital gains tax environment is immensely restrictive and is exacerbated by the availability of a simpler, clearer and more attractive relief in the UK.
“The UK allows a capital gain of £10m at 10pc tax before you hit the higher rate of CGT; a limit that the UK has increased three-fold since it introduced the relief.
“In Ireland, tax on an investor’s first capital gain on entrepreneurial investment is taxed at 33pc; over three times the tax rate of the UK”, she added.
Honohan highlighted that the National Policy Statement on Entrepreneurship said that the current tax treatment of share options is considered to be less competitive than that available in other countries and this is having a negative effect on the ability of Irish start-ups to attract world-class talent.
“The UK has an attractive regime designed to help small, higher-risk companies recruit and retain employees who have the necessary skills to help them grow and succeed. Ireland needs something similar and we need it soon.”