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For businesses in Ireland, there are several tax incentives that can help to make operating a business much more affordable. These tax incentives are designed to reduce the amount of tax payable, allowing businesses to invest more of their profits into growing their business.
When it comes to setting up and running a business, one of the most important factors to consider is the costs involved. From rent and employee salaries to taxes and other outgoings, it is important for business owners in Ireland to understand what costs the business must consider and pay when in operation. Keep reading to learn more about the tax incentives available in Ireland.
In Ireland, corporation tax is set at a rate of 12.5%. This rate was phased in between 1996 and 2003 when the previous rate of 40% was reduced. This reduction was implemented to create a more favourable business environment and to promote economic growth. In Ireland, we have the 3rd lowest corporate tax in the EU as an incentive for businesses. (The corporation tax rate is set to increase to 15% for companies with turnover in excess of €750 million).
Research and Development (R&D) Tax Credit
The research and development (R&D) tax credit in Ireland is a government incentive designed to encourage businesses to invest in innovation and research and development (R&D). The credit can be claimed as a cash payment or can be offset against taxes due.
The credit is based on the percentage of qualifying R&D expenditure incurred in a given year. The value of claimable tax relief available is 25% of the qualifying R&D expenditure. This tax incentive applies to any company that is actively engaged in qualifying R&D activities in Ireland or the EEA, regardless of their size or the sector they operate in.
This scheme has been around for 19 years, with the most recent changes coming into effect in March 2023. The amendment to this tax credit in the budget outlines that the first €25,000 of the credit claim will be payable in the first year. For more information on the qualifying criteria and how to claim this tax incentive, visit Revenue.ie.
Knowledge Development Box (KDB)
Thanks to budget 2023, this tax incentive which was due to expire at the end of 2022 has been extended for a further 4 years to accounting periods commencing before January 1st, 2027. This tax incentive promotes innovation, allowing for qualifying assets such as patented inventions, computer programmes, and copyrighted software to be taxed at a reduced rate of 6.25% rather than 12.5%. A qualifying company may be entitled to a deduction equal to 50% of its qualifying profits. Qualifying assets must be the result of R&D.
The KDB incentive is open to companies of all sizes, from SMEs to multinationals. Companies can apply for the incentive if they meet certain criteria and are earning income from qualifying assets.
Employment Investment Incentive (EII)
This tax incentive encourages individuals in Ireland to provide equity-based finance to trading companies. The scheme helps start-ups and SMEs that are looking to hire additional personnel and grow their businesses. Qualifying companies can raise a lifetime maximum of €15 million in risk finance.
The EII provides early-stage funding to SMEs, and/or can help them to expand to offshore markets. It offers up to 40% tax relief on investments up to €250k per year for a minimum four-year holding period. Individuals can choose to invest up to €500k per year if they are willing to invest for longer: for a minimum seven-year holding period. This can be very beneficial in helping companies to become established and profitable, while also creating quality jobs.
Accelerated Capital Allowance (ACA)
Accelerated Capital Allowance (ACA) is a tax incentive available to business owners in Ireland who are looking to invest in energy-efficient technology. This tax relief encourages businesses to replace energy-inefficient equipment or install new energy-efficient equipment in their business premises. It is available on a range of energy-efficient technologies, such as LED lighting, heating and cooling systems, and renewable energy sources such as solar PV or wind turbines.
The ACA incentive is available to companies, sole traders and farmers operating and paying corporation tax or income tax on trading/professional income in Ireland. Under the scheme, 100% of the following equipment can be claimed by a company:
· Gas vehicles and refuelling equipment.
· Energy efficient equipment (including electric and alternative fuel vehicles).
· Equipment in a creche or gym provided to employees by the company.
ACA must be claimed in the first year these assets are used within the business. The equipment purchased must be new and purchased for use in said trade (not leased/hired).
Temporary Business Energy Support Scheme (TBESS)
The TBESS is designed to help organisations that are facing rising energy costs. The scheme is open to Businesses carrying on Case I trade or Case II profession assessed under schedule D and also includes charities and approved sports bodies carrying on certain activities. This scheme is available until 30th April 2023.
Businesses must have experienced an increase of 30% or more in their average unit prices for energy and can claim 40% of said increases. The relief is capped at €45,000. The qualification threshold was recently reduced from a 50% increase in energy costs to a 30% increase.
In addition to the various tax incentives available, there is also a range of other grants and support programmes available. These awards are designed to help business owners access the resources and funding necessary to start and grow their businesses.
At Cronin and Co, we offer taxation services as well as outsourced payroll, accounting, and bookkeeping services for sole traders & companies across Ireland. For more information, visit our website or contact our team of experienced professionals today.