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| Jobs Initiative – May 2011 |
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By
Brendan Twohig – Senior Taxation Director, MK Brazil
May 17, 2011 |
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The Minister for Finance announced the Government’s 2011 Jobs Initiative on 10th May last which includes a number of measures aimed at stimulating job creation, and also details of how they propose to fund the incentives - mainly in the form a new pension fund levy.
Further information and clarifications will emerge in the coming weeks and especially when the Finance (No.2) Bill 2011 is published. In the meantime, the following is a summary of the main points:
- The Minister reaffirmed the Government’s commitment to retain the 12½% corporation tax rate.
- The 8.5% lower rate of Employer’s PRSI is to be halved for low paid employees so that, from 1st July 2011 onwards, the Employer’s PRSI for employees earning up to €356pw will be only 4.25%. It is expected that this reduction will run to the end of 2013 and will apply to both new and existing employees.
- The R & D regime will be tweaked to facilitate flexibility in the accounting treatment
- I understand this follows representations made in relation to US GAAP.
- In what is essentially a complete reversal of a measure introduced by the previous Government, the Employer’s PRSI exemption for share-based remuneration is to be re-instated with effect from 1st January 2011. There were no changes announced regarding Employee’s PRSI but see previous clarifications issued on this subject whereby existing share schemes were removed from the 4% charge.
- The minimum wage will be increased from €7.65 back to the previous level of €8.65pw from 1st July 2011.
- The Air Travel tax will be reduced to 0% in the near future. The legislation will remain in place to facilitate the quick re-introduction of the tax if the Government feels that targets are not being met.
- The initiative includes a variety of other measures and proposals including capital projects, training schemes, a review of JLCs, potential Credit Guarantee Scheme, etc.
0.6% Pension Fund Levy
The Government proposes to fund the above incentives by introducing a “temporary” levy on Irish pension funds. A levy of 0.6% will be applied to the capital value of assets under the management of Irish pension funds for four years from 2011 to 2014 inclusive. The new levy won’t apply to Pension funds dealing exclusively with non-resident employers and members.
Further details are awaited regarding this new levy and we will have to wait and see what its impact will be, e.g. on Defined Benefit Schemes, but there is no shortage of comment and reaction from the Pension Industry highlighting potential problems and concerns which may influence the final structure of the levy. Meanwhile the Minister is reviewing the tax reliefs for pension contributions. Clearly we will be hearing a lot more about these issues in the coming weeks.
9% VAT Rate:
Perhaps the most unexpected proposal included in the Jobs Initiative was the plan to temporarily reduce the 13½% VAT Rate to a new 9% rate for certain services – mainly those relating to the tourism and entertainment sectors. It is expected that this reduction will run from 1st July 2011 to 31st December 2013.
Further details will be included in the forthcoming Finance (No. 2) Bill 2011 but in the meantime the Revenue have issued further details in relation to the proposal. In summary, the new 9% rate will apply to the following supplies only:
- Catering and restaurant supplies, including vending machines and take-away food (but not alcohol and soft drinks if sold as part of the meal).
- Hotel lettings and other accommation, including guesthouses, caravan parks, camping sites etc.
- Cinemas, theatres, certain musical performances, museums, art gallery exhibitions.
- Fairgrounds and amusement park services.
- Facilities for taking part in sporting activities including green fees charged for golf and subscriptions charged by non-member-owned golf clubs.
- Certain printed matter, e.g. newspapers, brochures, leaflets, programmes, maps, catalogues, printed music (but excluding books).
- Hairdressing services.
Interestingly, certain other activities included in the third schedule are not included in the proposed list and thus will remain liable to the 13½% VAT rate, including for example tour guide services, short-term car hire.
It will be interesting to see how the proposals evolve before they are finalised. Some of the proposals will take time to tease out but most of the tax measures are due to take effect in July so we should see finer details in the Finance Bill in a matter of weeks. In the meantime, advisors should ensure that their clients are aware of the proposals including the issues that typically arise when there is a change in VAT rates.
Brendan Twohig,
Senior Taxation Director,
MK Brazil,
O'Connell Court,
64 O'Connell Street,
Waterford.
Phone: 051 840800
Fax: 051 874504
Email: info@mkbrazil.com
Web: www.mkbrazil.com
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