Ireland: Business tax, VAT proposals in budget 2022

Budget 2022 (announced 12 October 2021) includes various support measures for business taxpayers, value added tax (VAT) proposals, as well as modest changes to income tax rate bands and credits for individuals.

Finance Bill 2021 will be published on 21 October 2021.

The following provides an overview of certain tax measures proposed in budget 2022.

• Commitment to introduce a 15% minimum effective rate of tax for businesses with consolidated group turnover above €750 million (in line with the OECD BEPS 2.0 plan) alongside a reaffirmation of commitment to the 12.5% tax rate for businesses with a consolidated group turnover below €750 million.
• Interest limitation rules (limiting tax deductible net borrowing costs to 30% of EBITDA) and anti-reverse hybrid rules to be introduced from 1 January 2022 as the final steps in the transposition of the EU Anti-Tax Avoidance Directive into Irish domestic law.
• Corporation tax relief for certain start-up companies to be extended for a period of five years until 31 December 2026. The relief would also be amended such that companies may avail of the relief within their first five years of trading (an increase from the current three-year window).
• Extension of the accelerated capital allowances scheme for gas vehicles and refuelling equipment to the end of 2024 and expansion of the relief to investment in hydrogen powered vehicles and refuelling equipment.
• Changes to the accelerated capital allowances scheme for energy efficient equipment to exclude from the relief investment in equipment directly operated by fossil fuels.
• Extension of the Employment Investment Incentive (EII) scheme for a further three years, along with certain enhancements to the scheme to make it more attractive to investors.
• Refundable corporation tax credit to be introduced at a rate of 32% for eligible expenditure incurred (capped at €25 million per project) on the design, production and testing of a digital game (subject to EU state aid approval being granted).
• The bank levy (which was due to expire in 2021) to be extended to 2022. It will not apply to Ulster Bank Ireland DAC or KBC Bank Ireland plc in 2022 given their intention to exit the market in 2022.

• A VAT rate of 9% for certain activities in the hospitality and tourism sector to continue to 31 August 2022.
• Rate of carbon tax to be increased by €7.50 per tonne/CO2 from midnight in respect of auto fuels and from 1 May 2022 in respect of other fuels, in line with the series of annual increases provided for in Finance Act 2020.
• Revised vehicle registration tax (VRT) table to apply from 1 January 2022 which will see an uplift in VRT rates to the current 20 band table. There will be a 1% increase for vehicles in bands 9-12, a 2% increase for vehicles in bands 13-15 and a 4% increase for vehicles in bands 16-20.
• €5,000 VRT relief available on the purchase of Battery Electric Vehicles to be extended to the end of 2023.
• Excise tax (duty) on a packet of 20 cigarettes to be increased by 50-cent (including VAT) with a pro-rata increase on other tobacco products.
• The flat-rate addition for farmers (which compensates non-VAT registered farmers for irrecoverable VAT on their input costs) to decrease from 5.6% to 5.5% from January 2022.

Read an October 2021 report prepared by the KPMG member firm in Ireland

The KPMG member firm in Ireland has prepared a guide to additional tax measures contained in budget 2022, including:

• Individual (personal) tax
• Employment taxes
• Business tax
• Indirect and environmental taxes
• Property and construction
• New interest limitation rule
• BEPS 2.0 and international tax developments
• Climate action
• Tax rates and credits 2022
• Individual tax scenarios 2022