IN ORDER TO sustain recovery in the economy, we need to focus on jobs and growth.
Entrepreneurs will be central to this – and that’s why there are a number of specific incentives to support their work.
A ‘Start-Up Exemption’ for entrepreneurs was introduced to reduce the corporation tax burden for the first three years of a company’s trading, and it is available for startups that have begun trading before the end of 2018.
This incentive is only available under certain conditions. It allows for a three-year tax waiver on the profits and capital gains of companies with annual tax liabilities of less than €40,000.
This means if your total amount of corporation tax is below this figure, you’ll be exempt from corporation tax on both trading profits and any chargeable gains on the sale of assets used for your new business.
Where corporation tax for the period is between €40,000 and €60,000, marginal relief will apply, with no relief available above the upper threshold.
It will apply for three years from the commencement of the new business once certain conditions are met.
The relief is granted by way of a credit against the company’s corporation tax liability for a period and is limited to the employers PRSI contribution paid in that period. The latter must be a maximum of €5,000 per employee and €40,000 overall.
Another tax relief incentive scheme available to entrepreneurs is the ‘Start Up Relief for Entrepreneurs (Sure)’, formerly known as the ‘Seed Capital Scheme’.
Under this scheme an individual may be entitled to an income tax refund of up to 41% of the capital they invest in starting their own company. This relief targets individuals who leave PAYE employment to set up their own companies.
The Sure investor may have been a top-rate taxpayer when employed, so the scheme is designed to allow them to elect to shelter income earned during any of the previous six years in order to maximise the tax rebate.
The maximum investment that can qualify under the Sure is €700,000 – that is, €100,000 per annum for the previous six years and €100,000 in the current year.
Certain conditions must be met to qualify for Sure. These include: establishing a new company which carries out a qualifying trading activity; the entrepreneur is to take up full-time employment in the new company as a director or an employee; and they must invest cash into the company by way of purchase of new shares.
The Entrepreneur’s Relief Scheme is also designed to support Ireland as an internationally competitive location for growth and investment.
The standard rate of Irish capital gains tax (CGT) on disposals of all assets is 33%. From the beginning of 2016, this relief allows entrepreneurs to apply a CGT rate of 20% on chargeable gains arising on the disposal of certain business assets up to a lifetime limit of €1 million.
This relief has been further reduced from 20% to 10% from the start of 2017. It should be noted that the relief is only available to individuals and is available irrespective of whether one or multiple disposals take place.
The lower rate of tax does not apply however to disposals of assets in certain businesses such as investments and land development.
To qualify for the relief scheme, the individual who is disposing of shares in a company must satisfy two conditions: they must have owned at least 5% of the shares in the company and they must have worked for the company in a managerial capacity for at least three out of five years immediately prior to the disposal.
With the upcoming Budget, we’d like to see some other measures to support startups, including:
- An increase in the earned income tax credit to €1,650 for self-employed workers to bring them in line with others;
- An increase in the above-mentioned lifetime limit for CGT Entrepreneur Relief to potentially €15 million;
- The introduction of a workable share-based remuneration scheme for employees of small companies.
We won’t have to wait too long to see if our hopes are met with what is announced in October.
Cormac Kelleher is a tax partner in Mazars.
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