Supply of property

Under the new rules, in order for the supply of a property to come within the charge to VAT the property must have been developed and must be supplied for consideration in the course of business.

The supply of a completed property is taxable only while the property is considered new.  A property will be considered new on:

• The first supply of a completed property within five years of its completion
• The second and subsequent supply of a property if it occurs within two years of occupation

The supply of an “old” property is exempt from VAT however both parties may jointly opt to have the supply subject to VAT.

However, it should be noted that VAT will always be chargeable on the supply of a residential property by a developer/builder.

Also, the supply of property in connection with an agreement to develop the property will always be subject to VAT.

Letting of property

Under the new rules letting of property is exempt from VAT.  However the landlord may exercise an option to apply VAT to a letting.  If a landlord wishes to exercise his option to tax he must either; obtain the agreement of the tenant in writing, or issue a document to the tenant stating that the letting will be taxable.

The option to tax cannot be exercised in the following circumstances:

• Letting of a residential property
• Letting between connected parties

Where an option to tax is terminated there may be implications under the Capital Goods Scheme.

Capital goods scheme (CGS)

This is a new idea introduced with effect from 1 July 2008.  The aim of the CGS is to take account of changes in the use of a property over its “VAT life”. The “VAT life” of a property is generally twenty years.

The exempt supply of an “old” property during its “VAT life” will result in a clawback of VAT.  This can be avoided by exercising the joint option to charge VAT.

All new properties developed on or after 1 July 2008 or properties refurbished on or after 1 July 2008 must have a “capital good record”. This record will contain information such as how must VAT was deducted on acquisition, details of any CGS adjustments, etc.

Transitional rules

There are transitional rules in place to deal with the supply of properties which were taxable under the old rules and which are supplied on or after 1 July 2008.  Where the person making the supply was not entitled to deduct VAT on the acquisition, the supply of the property on or after 1 July 2008 is exempt from VAT.  However the seller and the purchase may jointly opt to tax the supply.

There are also special rules for dealing with leases for a period of 10 years or more which are assigned or surrendered on or after 1 July 2008.  In such cases, the question of whether a liability to VAT arises will depend of whether the tenant was entitled to deduct VAT on the acquisition of the lease.  If the tenant was entitled to deduct VAT then the supply is subject to VAT, if not, then the supply is exempt.  In the case of an exempt supply both parties may jointly opt to apply VAT to the assignment or surrender.

PRSI

PRSI stands for “pay related social insurance” and it is a charge towards the cost of social insurance benefits & pensions such as, unemployment benefit, maternity benefit, old age pension, etc.  PRSI is payable by both employees and self employed individuals aged between 16 & 66 with income over certain limits.

PRSI is broken down into two separate groups – employees and self employed individuals with different rates and conditions for each group.

Employed contributions

For an employee the rate at which PRSI is payable is determined by reference to the amount of salary earned per week/per month and the nature of the work involved.  Most employees in Ireland pay PRSI at Class A rate.  This class of contribution entitles the individual to full social insurance based benefits subject to specific conditions.

There are other classes of social insurance such as C, D, E, H, J, S, K, M and P.  An employee paying PRSI under any of these classes will be paying a lower rate of PRSI than the Class A rate of 4% and therefore will not be entitled to the full range of benefits.

The rates of PRSI for Class A1 for the 2010 tax year are as follows:

Employee contribution                  4% up to an income ceiling of €75,036*

Employer contribution                   8.5% where employee’s income is less than €356 per week

10.75% where employee’s income exceeds €356 per week

*Employee’s are exempt from PRSI on the first €127 per week.

Self employed contributions

Self employed individuals are liable to PRSI where they have income of €3,174 or more in a tax year from all sources.  The rate at which they pay PRSI is 3% on all income with no ceiling.  Clearly this rate is lower than the rate for an employed contributor.  This is due to the fact that a self employed individual cannot avail of full social insurance benefits such as unemployment benefit, disability benefit, etc.

Another point to note is that self employed contributors are subject to a minimum annual contribution of €253.

Directors

The PRSI situation for directors is more complex than for a regular employee.  Some directors will pay PRSI at the employee rates whilst others will pay at self employed rates depending on several factors including shareholding, level of control, etc.

Health Levy

The health levy is a charge payable by all individuals aged between 16 & 70 towards the cost of health services in the State.  For many years the health levy was charged at a rate of 2% however the rates for the 2010 tax year are now as follows:

Employed & self employed contributors
4% on income up to €75,036
5% on income over €75,036

An employee or a self employed contributor will be exempt from the health levy where his/her income for the year does not exceed €26,000.  Also, holders of a full medical card are exempt from the health levy.

FOREIGN ASPECTS

Where an employee is assigned to a foreign country to work for a temporary period (generally less than 5 years) it may be possible to remain in the Irish social insurance system.  This will ensure continuity in their PRSI record and will exempt them from social insurance in the foreign country.  In order to do this the employer must obtain an E101 (postings within Europe) or a Certificate of Coverage (postings outside Europe) on behalf of the employee.  If successful the PRSI due from both the employer and the employee will be paid to PRSI Special Collections Section on a quarterly basis rather than through the PAYE/PRSI system.  In addition to the payment there are various forms/returns which must also be completed and filed on a quarterly and annual basis.

If you have any queries regarding the above please do not hesitate to contact us.

An individual will be considered Irish tax resident for a tax year if he spends:

• 183 days in Ireland during that tax year, or
• 280 days in aggregate between that tax year and the previous tax year

Notwithstanding the above, an individual who spends 30 days or less in Ireland in a tax year will not be considered tax resident in that year.

With effect from the 2009 tax year, an individual shall be deemed to be present in Ireland for a day if that individual is present in Ireland at any time during that day. Prior to the 2009 tax year, a day was only counted if the individual was present in Ireland at the end of the day.

ORDINARY RESIDENCE

A person is ordinarily resident in Ireland for a year of assessment if he has been resident for each of the three years of assessment preceding that year.

An individual who is ordinarily resident in Ireland will remain ordinarily resident until he has been non Irish tax resident for three consecutive years of assessment. In this situation, he will be non-ordinarily resident from the fourth year.

DOMICILE

“Domicile” is not defined in the Income Tax Acts. Broadly it refers to the country which an individual considers as his natural home.

Domicile of Origin

An individual is born with a domicile known as his domicile of origin. Normally he will assume the domicile of his father, but where his parents have not married, or if his father dies before his birth, he will assume his mother’s domicile.

Once an individual has reached the age of majority he can reject his domicile of origin and acquire a new domicile. In order to abandon his domicile of origin the individual must prove conclusively that he has severed all links with the country in which his domicile of origin lies. A domicile cannot be lost by a mere abandonment. It can only be lost by the positive acquisition of a domicile of choice.

Domicile of Choice

A domicile of choice is the domicile which any independent person can acquire for himself by a combination of residence and intention. To acquire a domicile of choice an individual must establish a physical presence in the new jurisdiction and have an intention to reside there indefinitely. A domicile of choice can in turn be abandoned. This will involve either the acquisition of a new domicile of choice or the revival of the domicile of origin. Here again, the two factors of presence and intention will be required.

EFFECT OF RESIDENCE/ORDINARY RESIDENCE AND DOMICILE ON TAX STATUS

TAX CREDITS
Tax credits are those items which can be found on the annual Notice of Determination of Tax Credits and Standard Rate Cut-Off Point issued by the Revenue Commissioners. There are many tax credits which can be claimed depending on personal circumstances. Tax credits are non refundable however any unused credits from one month/week can be carried forward to subsequent pay periods within the tax year. Whilst it is not possible to list every available tax credit the most commonly claimed are as follows.

Personal tax credit
This is granted to all taxpayers and is determined by reference to married status. The rates for 2010 are as follows:

Married couple – jointly assessed €3,660
Single person €1,830
One parent family allowance (additional) €1,830
Widowed person – year of bereavement €3,660

Employee tax credit
Any individual in receipt of emoluments subject to income tax under Schedule E is entitled to claim this credit. The one exception is that neither proprietary directors nor their spouses are entitled to this credit. For the 2010 tax year this credit is €1,830

Age tax credit
This credit is available where an individual or their spouse reaches age 65 in a year of assessment. The rates for 2010 are €650 for a married person jointly assessed and €325 for a single person.

Service charges
An individual who pays service charges in full and on time may claim relief at the standard rate in respect of those charges. The credit applies for charges paid in the preceding tax year. The tax relief available is subject to an overall ceiling of €400 per annum. This relief is due to cease with effect from the 2011 tax year.

Dependent relative credit
This credit can be claimed by any individual who maintains a relative at his/her own expense. In order to qualify the claimant must prove that the relative is:

• incapacitated by old age or infirmity from maintaining themselves, or
• a widowed mother/mother in law, widowed father/father in law, or
• a son or daughter who resides with them and on whose services they must depend due to old age or infirmity

Additionally if the income of the dependant relative exceeds a specified limit (€13,837 for the 2010 tax year) no credit will be due. The credit for the 2010 tax year is €80.

Home carer’s credit
This can be claimed by a married couple who are jointly assessed where one spouse works at home caring for children, the aged or incapacitated persons. The amount of the credit for the 2010 tax year is €900 and in order to fully qualify the income of the carer spouse must not exceed €5,080. Where the carer spouse has income between €5,080 and €6,880 a reduced credit will apply. It should be noted that the home carer’s credit and the increased standard rate band are mutually exclusive however the taxpayer will be granted whichever is more beneficial.

TAX RELIEFS

Medical expenses
Medical expenses may be claimed on a Form Med1 at the end of the tax year. With effect from 1 January 2009 medical expenses are allowable at the standard rate of tax with the exception of nursing home fees which are still allowable at the higher rate of tax. Most medical expenses will qualify for relief however expenses which have previously been claimed under a private health insurance policy will not be allowable.

Retirement Annuity Contracts (RAC)
Self employed individuals or employees who are in non pensionable employment may make contributions to an RAC during a tax year. Relief is then available on those premiums subject to the normal funding limits. Relief for contributions to an RAC are allowable at the higher rate of tax.

Personal retirement savings accounts (PRSA) contributions
Contributions to a PRSA are allowable for tax relief at the individual’s marginal rate of tax. The tax relief is given either through the payroll (net-pay arrangement) where the PRSA is an employer sponsored scheme, or by way of reclaim after the tax year through the filing of a personal tax return. The contributions must be within the maximum funding limits set down by Revenue in order to qualify for full relief.

In addition to the tax relief available, employees may also be entitled to relief from PRSI and levies on PRSA contributions. In the case of a net-pay arrangement the relief from PRSI and levies will be operated by the employer but otherwise a reclaim must be made by the individual to the Department of Social & Family Affairs after the end of the tax year.

Third level fees
Individuals may be entitled to claim relief for fees paid to third level colleges on their own behalf or on behalf of another individual. In order to qualify the course must be an approved course in an approved college and must be of a specified duration. Relief is given per course however there are maximum limits imposed depending on the particular course ranging from €315 to €5,000 per annum. Relief is available at the standard rate of tax.

Donations
Self employed taxpayers who make donations to eligible charities can claim a deduction on their personal tax return in respect of this amount. In order to qualify for tax relief the donation must meet certain conditions imposed by the Revenue. These conditions can be summarised as follows:
• The minimum qualifying donation is €250.
• The donation must not be repayable.
• Neither the donor, nor any connected person, can benefit from the donation, either directly or indirectly.
• The donation is not otherwise tax deductible.
• In the case of an individual, the person must be resident in the State in the year the donation is made.

The above is just a sample of the reliefs and credits which may be claimed by taxpayers. Each person will be different as the reliefs and credits are dependant on each person’s particular circumstances. If you would like more information on any of the above please do not hesitate to contact us.

Self employed

In order for expenditure to be allowed in computing the profits of a self employed individual for an accounting period it must be:

• Revenue in nature and not capital,
• incurred wholly and exclusively for the purposes of the trade
• Not specifically disallowable

As mentioned above for an expense to be allowable it cannot be of a capital nature.  Neither revenue nor capital is defined in the Income Tax Acts.  As a result there has been numerous tax cases on this subject and a number of broad principles have emerged which can help in deciding whether a receipt is of a revenue or capital nature.

• Payments for the sale of the assets of a business are generally capital receipts
• Payments in lieu of trading receipts are income receipts.
• Payments of a recurring nature are usually treated as income receipts
• Payment made in return for the imposition of substantial restrictions on the activities of a trade are of a capital nature

In addition to the above there are some items of expenditure which are specifically disallowed under the Tax Acts when computing annual profits, including:

• Client entertainment expenses
• Private expenses
• Provisions for repairs
• Creation or increase of general provisions
• Interest on late payment of tax

Employees

The situation for employees is more rigorous than for self employed individuals. Section 117 TCA 1997 imposes a charge to tax under Schedule E in respect of expense payments to employees.  In order for an expense to be deductible it must be “wholly, exclusively and necessarily incurred in the performance of the duties” of the office or employment.  This contrasts with the situation for self employed individuals where the expense must only be wholly and exclusively incurred in order to be allowable.

Some examples of allowable expenses are as follows

• cost of special clothing worn in performance of duties
• cost of tools used in performance of duties
• cost of books and newspapers is allowed to journalists

In addition to the above where employees incur motoring or subsistence expenses in the performance of their duties of employment they may be entitled to tax free reimbursement of these amounts as set out in Revenue leaflets IT51 (subsistence) and IT54 (motoring), see www.revenue.ie.  It should be noted that the provisions as set out in IT51 & IT54 only relate to employees/directors chargeable to tax under Schedule E (PAYE), they do not apply to self employed individuals.

There are numerous conditions which must be met and also detailed records which must be kept in order to fulfill the requirements as set out by Revenue.  Additionally there are different rates of reimbursement depending on the circumstances involved.  This is an area where particular attention should be paid as it regularly features in PAYE audits and the resulting liabilities can be quite substantial.

If you would like more information on any of the issues as set out above please contact us.

APPROVED PROFIT SHARING SCHEMES (APSS’s)

An APSS must be set up under a trust deed and must receive Revenue approval.  Once approval has been obtained an employee can receive shares up to a value of €12,700 per year tax free.  The shares must be left in the trust for three years for full tax-free status to be maintained.  If the shares are disposed of before the Release Date the employee is charged to income tax on the lesser of the market value of the shares at the date of appropriation or the sales proceeds. Capital gains tax may also arise on the eventual disposal of the shares.

Participation is open to all full-time directors or full-time and part-time employees chargeable to tax under Schedule E once they satisfy the qualifying period (not more than 3 years).  Shares cannot be allocated to an individual owning more than 15% of the company where it is a close company.

SAVE AS YOU EARN SCHEMES (SAYE’s)

Under an SAYE scheme, employee’s save a certain portion of their monthly, after tax salaries into a certified contractual savings scheme over a 3 year period.  At the end of the savings period the accumulated fund can be used to purchase shares in the employer company. The shares can be purchased at a discount of up to 25% of the market value at that date.  Employees are allowed to save a minimum of €12 or a maximum of €500 per month from net income.

All employees and full time directors of the company who have been employed for a qualifying period (not more than 3 years) must be eligible to participate in the scheme.  However, any person who held at any time in the previous 12 months a material interest in the company cannot participate.

An SAYE scheme must receive approval from Revenue.  Once approval has been obtained income tax will not apply to the gain arising at the date of exercise of the SAYE option.  Instead, capital gains tax will be chargeable on any gain arising on disposal of the shares.

APPROVED SHARE OPTION SCHEMES (ASOSs)

Under an ASOS there will be no income tax charge at date of grant or at date of exercise.  Instead the individual will be subject to capital gains tax on the disposal of the shares on the difference between the amount paid for the shares under the option and the sale proceeds.

In order to gain Revenue approval certain conditions must be met, including:

• Shares must not be disposed of for at least 3 years from date of grant.
• Option price must not be less than market value of shares at date of grant.
• The scheme must be open to all employees and all employees must be able to participate in the scheme under similar terms.

However it is permitted for the scheme to contain a “key employee” element where options can be granted without the similar terms conditions.  Nevertheless not more than 30% of the options granted in a particular year can come under this key employee provision.

UNAPPROVED SHARE OPTION SCHEMES

Under an unapproved share option scheme the tax treatment is as follows:

Grant of Option

Where an option granted to an employee is exercisable within seven years of grant, no charge to income tax arises at date of grant. Where the option granted can be exercised later than seven years after its grant, the employee will be subject to income tax on the difference between the market value of the shares at the date of grant and the option price.

Exercise of Option

On exercise the employee will be subject to income tax on the difference between the option price and the market value of the shares at that date.  Where appropriate a credit is available for any tax paid on grant of the option.

With effect from 30 June 2003, any income tax arising on the exercise of the option must be paid to Revenue within 30 days of the exercise.

Disposal of Shares

The disposal of shares by an employee will give rise to a charge to CGT.  The taxable amount is calculated based on the difference between the sales proceeds and the original option price paid by the employee for those shares.

In addition, a deduction will be available for any amount chargeable to income tax on the exercise of the share option.

EMPLOYEE SHARE PURCHASE PLAN

Under this scheme, certain employees or directors can claim a deduction against their total income for the cost of purchasing shares in his/her employer company.  The maximum lifetime deduction allowed per employee is €6,350. Certain conditions must be fulfilled in order to qualify for this deduction, including:

• Shares must be issued in a “qualifying company”, i.e. a company which is:
  • incorporated in Ireland,
  • resident in Ireland and not resident elsewhere, and
  • a trading company that carries on its business wholly or mainly in Ireland, or a holding company whose business consists wholly or mainly of the holding of shares of such trading companies that are its 75% subsidiaries.
• Shares must be new shares that form part of the ordinary share capital of the company.
• Shares must be subscribed for at not less than market value.

Where the shares are disposed of within three years, there will be a claw-back of the income tax relief, except in the event of a reorganisation of the company’s share capital.

At the time the restriction was aimed at individuals with income in excess of €250,000 and the restriction worked by limiting the specified reliefs which an individual could claim to the greater of €250,000 or 50% of the individual’s “adjusted income”.  The effect of this restriction was to ensure that the effective rate of tax paid would be in or around 20%

However Finance Bill 2010 has now broadened this restriction by lowering the minimum income limit whereby the restriction will apply from €250,000 to €125,000.  Additionally, it is seeking to increase the effective rate of tax from 20% to 30%.

So how does the restriction work?

There are several steps in calculating the restriction as follows:

1. Calculate taxable income before any restriction is applied (T)
2. Calculate the total amount of “specified reliefs” for the tax year (S)
3. Add 1 and 2 to give an “adjusted income” figure (Y)

If adjusted income is equal to or greater than €125,000 and the amount of specified reliefs used in the year is equal to or greater than €80,000 – the restriction will apply.

1. The restriction works by limiting the specified reliefs to the greater of:

–        A.  €80,000 or

–        B.  20% of the adjusted income amount, i.e. (Y)

The restricted amount is deducted from total of specified reliefs and the excess is added back to original taxable income figure to give an “increased taxable income amount”.  This is then taxed as normal.

If we take an example of someone with the following sources of income for the 2010 tax year we will see the effect that the introduction of these restrictions and the subsequent amendments has on the taxable income figure:

Rental income €600,000
Dividends €200,000
S23 relief €550,000

Calculation of tax liability if restrictions hadn’t been introduced:

Calculation of tax liability post Finance Acts 2006 & 2007:

Taxable income before restrictions (T) = €250,000

Total amount of specified reliefs for the year (S) = €550,000

Adjusted income (T + S) = €800,000

Restriction (Y) = amount of specified reliefs restricted to greater of €250,000 or 50% of €800,000 (adjusted income), i.e. €400,000

Revised taxable income = T + S – Y, i.e. €250,000 + €550,000 – €400,000 = €400,000

Taxed as:

Calculation of tax liability post Finance Act 2010:

Taxable income before restrictions (T) = €250,000

Total amount of specified reliefs for the year (S) = €550,000

Adjusted income (T + S) = €800,000

Restriction (Y) = amount of specified reliefs restricted to greater of €80,000 or 20% of €800,000 (adjusted income), i.e. €160,000

Revised taxable income = T + S – Y, i.e. €250,000 + €550,000 – €160,000 = €640,000

Taxed as:

As can be seen from these examples the difference in the taxable income figure from a starting point of €94,856 to a final figure of €254,756 is quite dramatic and will have an effect not just on current year liabilities but also on preliminary tax requirements.  With the new lower limit more people than ever will be caught by these restrictions.  Anyone who thinks they may be caught by these restrictions should contact us as soon as possible so that any additional liabilities can be quantified.

PENSIONS AND TERMINAL LOSS RELIEF

Where a trade or profession is permanently discontinued and in the twelve months to the date of discontinuance a loss has been sustained (“terminal loss”), the loss may be off set against the trading profits for the three years of assessment prior to the year of cessation provided that relief is not claimed for the loss under any other section.

The amount of the terminal loss is the aggregate of the following:

• the loss sustained in the year of cessation;
• the relevant capital allowances for the year of cessation;
• the loss in the part of the penultimate year of assessment beginning twelve months before the date of cessation;
• the proportion (on a time basis) of the relevant capital allowances for the penultimate year of assessment appropriate to the period mentioned in (c).

The terminal loss, when computed, is set against the taxable profits of the trade for the three preceding years of assessment and is given, as far as possible, against the profits of a later rather than an earlier year.

A trade or profession is deemed to be permanently discontinued where there is a change in ownership. Accordingly, relief for a terminal loss may be claimed in such circumstances.

If we take a situation where a company makes a pension contribution before ceasing to trade and this contribution generates a loss for the company.  This loss will be deemed to be a terminal loss and will be available for offset against the profits of the previous three years.  This will have the result of an increased pension fund for the director/employee and a CT saving for the company.

PENSIONS AND CGT

The charge to capital gains tax arises on gains accruing on the disposal of assets. If a company is being sold and there are considerable cash reserves in the company and the directors/shareholders are under funded for pensions it may be an idea to use the cash to fund the pension.  This will have the effect of reducing the value of the company and consequently the amount of CGT payable.  

PENSIONS AND CAT

Business property relief reduces the taxable value of “relevant business property” by 90%.  This combined with the 20% rate of CAT means that assets qualifying for business relief would suffer an effective tax rate of 2% after the relevant thresholds have been used up.  There are several conditions which must be satisfied in order to claim business property relief, some of which are as follows:

• Business property is defined as follows:
  a)      Property consisting of a business or an interest in a business;
  b)      Unquoted shares or securities of a company (whether Irish incorporated or not) subject to certain conditions;
  c)      Land, buildings, machinery or plant owned by the disponer but used by a company controlled by the disponer or by a partnership in which the disponer was a partner;
  d)      Quoted shares or securities of a company which were owned by the disponer prior to their becoming quoted.
• The business carried on must not consist wholly or mainly of dealing in land, shares, securities or currencies or of making or holding investments.
• The relevant business property must have been owned by the disponer, or by the disponer and his spouse, for at least five years prior to a gift, or for at least two years for an inheritance taken on the disponer’s death. 
• Agricultural property qualifies for the relief whether held by a company or an individual, provided all the above conditions are satisfied and that agricultural relief does not apply.
• Business relief will be clawed back if the business property is sold or otherwise disposed of within a six-year period after taking the gift or inheritance.

It should be noted that cash is not a qualifying asset for the purpose of business property relief.  In a situation where business property relief is being claimed and there is significant cash in the company it may be beneficial to use that cash to provide an increased pension.

This will not only result in a CAT saving but the additional pension contribution will also generate a CT saving at 12.5% (assuming that it is within the maximum allowable limits).

1. Some types of income remain subject to Irish income tax even though an individual is no longer Irish tax resident, if so an Irish income tax return will have to be filed in respect of that income.
2. Where an individual leaves Ireland on assignment and the salary remains paid through the Irish payroll a PAYE exclusion order must be obtained in order to avoid deduction of Irish PAYE.
3. Even where a PAYE exclusion order is acquired a portion of the salary may in certain circumstances remain subject to Irish income tax.  If so a tax return will need to be filed after the end of the tax year to account for any tax due.
4. Directors of Irish registered companies cannot obtain a PAYE exclusion order.
5. Tax free subsistence rates can be paid to employees / directors whilst on assignment in a foreign country.  The amounts which can be paid are determined by reference to the country of assignment and the length of the stay.
6. An individual leaving Ireland on assignment remains subject to Irish PRSI for the first 52 weeks of the assignment.
7. It is possible to obtain an E101 / Certificate of Coverage from the Department of Social and Family Affairs (DSFA) to remain in the Irish PRSI system for the entire duration of a temporary assignment.  Where an E101 / Certificate of Coverage is obtained the Irish PRSI must be paid to the PRSI special collections system with the appropriate quarterly/yearly returns.
8. When an individual comes to Ireland it is possible to remain in their home country social security system and claim exemption from Irish PRSI.
9. The remittance basis of assessment has been abolished for individuals performing duties of employment in Ireland subject to some exceptions.
10. Irish landlords leaving the country who become non resident must appoint a collection agent to collect rents and file the appropriate tax returns on their behalf.  If not the tenant must deduct a withholding tax from the rents and pay it over to Revenue.

Corporation tax

Transfer pricing
The Finance Bill has introduced transfer pricing legislation which will apply to transactions between associated parties.  The new rules will only apply to large companies.  They will have effect from 1 January 2011 and they will apply to both domestic and international transactions.

Tax relief for start-up companies
There is an extension of the current relief for start-up companies which commence to trade in 2010.

Dividends
Foreign dividends paid out of trading profits of a company tax resident in a non treaty country, where the company is 75% owned by a publicly quoted company will now be subject to Irish corporation tax at a rate of 12.5%.

Income tax

Remittance basis – Irish citizens
With effect from 1 January 2010 Irish citizens who are not ordinarily resident will no longer be entitled to avail of the remittance basis of assessment.  This means for example that individuals who are resident and domiciled in Ireland but not ordinarily resident will be subject to Irish income tax on foreign income on an arising basis regardless of whether the income is remitted to Ireland.  In some cases income earned prior to returning to Ireland could become subject to Irish income tax.

Remittance basis – foreign executives
The Finance Act 2008 introduced a limited form of remittance basis to earnings of foreign executives assigned to Ireland from a non EEA country, who remained employed under a non EEA contract of employment.

With effect from 1 January 2010 this relief has now been widened to include employees assigned to Ireland from an EEA country who remain employed under an EEA contract of employment.

In order to qualify certain conditions must be met, as follows:

• the assignment must be for a period of at least 12 months (this was previously 3 years);
• the individual must not have been resident in Ireland previously; and
• the individual must not have exercised duties of employment in Ireland previously.

Service Charges
Relief for service charges paid will cease to be available beyond 2011. Relief will still be available in 2011 for charges paid during the 2010 tax year.

Mortgage Interest
Mortgage interest relief will be abolished with effect from the 2018 tax year.

For qualifying loans taken out between 1 January 2004 and 31 December 2011 tax relief will be available at current rates depending on whether the individual is a first time buyer or not.

For qualifying loans taken out during 2012, tax relief will be available up to 2017 but on a reduced basis.

No relief will be available for loans taken out from 2013 onwards.

Health expenses
Non-essential cosmetic surgery will no longer qualify for tax relief.  However fees paid to nursing homes will qualify for relief at the marginal rate where access to 24 hour nursing care is provided on-site.

Share Schemes
Mandatory reporting requirements have been introduced where shares awards are granted to employees or directors.  Previously these awards were reported on a P11D which was only required to be completed when requested by Revenue.

The due date for the submission of the new return is 31 March and a fixed penalty has been introduced where this return is not made.  This section has effect for shares awarded from 1 January 2009.

High earners restriction
The Finance Act 2006 introduced restrictions on the amount of specified reliefs an individual could claim in a year where that individual’s income exceeded €250,000.  The aim of this was to ensure that every individual paid a minimum effective tax rate of 20%.

The Finance Bill 2010 has reduced the minimum income limit from €250,000 to €125,000 with a full restriction applying to income in excess of €400,000.  In addition the formula for computing the restriction has been amended to the greater of €80,000 (previously €250,000) and 20% (previously 50%) of adjusted income.

The effect of these changes is that where an individual has income of €125,000 or over and specified reliefs of €80,000 or over he/she will now be caught by these restrictions.

Domicile Levy
With effect from 1 January 2010 a domicile levy of €200,000 will be imposed on all Irish citizens who are domiciled in Ireland provided that the following conditions are met:

• worldwide income for the tax year is greater than €1m;
• final Irish income tax liability is less than €200,000; and
• market value of Irish property owned on 31 December exceeds €5m.

Capital gains tax

Retirement relief
Retirement relief will be available on the redemption, repayment or purchase by a company of its own shares in relation to disposals on or after 4 February 2010.

Compulsory Purchase Orders
With effect from 4 February 2010, the date of disposal of assets under a CPO will be the date on which the owner receives the CPO consideration.

Windfall Tax
An exemption to the windfall tax has been introduced for profits or gains from the disposal of sites of less than 1 acre where the market value is less than €250,000.

Additionally, the windfall tax has been extended to profits or gains attributable to decisions taken by planning authorities which materially contravene the development plan for the area.

VAT

Local authorities and public bodies
Following on from a recent European Court of Justice ruling it is proposed that local authorities and public bodies will be subject to VAT in relation to certain services where the non taxability could lead to a distortion in competition.  Services such as off-street parking may be impacted however the supply of water will remain exempt from VAT.

Motor vehicles
With effect from 1 January 2010 the new margin scheme will be implemented on the sale of second hand cars.  Under this new scheme, motor dealers will only be required to account for VAT on the margin earned on the sale of second hand cars.

Carbon tax
With effect from 1 May 2010 the carbon tax will be extended to include kerosene and natural gas. The rate of carbon tax is currently €15 per tonne.