Business Tax

As part of Budget 2024, the government signed off on a package of €257 million for the Increased Cost of Business (ICOB).  The main aim of this Grant is to support small and medium sized businesses by contributing towards their rising business related costs including energy, labour, rent, etc.

To Qualify for the ICOB Grant

To qualify for the ICOB grant your business must meet the following conditions:

• It must be a commercially trading business, currently operating directly from a property that is commercially rateable.

• It must have been trading on 1st February 2024 and your intention must be to continue trading for at least three months.

• Your commercial rates bill must be equal to or less than €30,000 for 2023.

• You must submit confirmation of your bank details to the relevant Local Authority.

• The business must be considered rates compliant. This includes businesses with phased payment plans in place.

• It must possess a valid Tax Registration Number.

• It must be tax compliant.

The Grant Amount

The ICOB grant is a once-off payment based on the value of the 2023 commercial rates bill.

The grant is 50% of the commercial rates bill for eligible businesses with a 2023 bill of less than €10,000.

The grant is €5,000 for eligible businesses with a commercial rates bill of between €10,000 and €30,000.

Businesses, however, with a commercial rates bill over €30,000 are not eligible to receive this ICOB Grant.

Please be aware that Public institutions and financial institutions will not be eligible for the grant, except for Credit Unions and specific post office services.

Vacant properties will also not be eligible for the ICOB Grant.

It is important to keep in mind that this ICOB Grant is not a Commercial Rates waiver. Rateable businesses are still required to pay their commercial rates to their local authority.

Today, the Government issued two important updates concerning the Increase in Grant Scheme (ICOB):

• They specifically targeted businesses in the Retail and Hospitality sectors. Businesses operating within these sectors are now eligible for a second grant payment which is equivalent to the initial ICOB Grant amount.

• The closing date for eligibility confirmation which was 1st May 2024 has now been re- opened from 15^th May to 29^th May 2024.

Local Authorities are expected to begin paying out the ICOB Grant to eligible businesses in the coming weeks.

For further information, please follow the links:

https://www.mycoco.ie/icob

https://www.dlrcoco.ie/sites/default/files/2024-03/ICOB%20User%20Guide.pdf

Please be aware that the information contained in this article is of a general nature.  It is not intended to address specific circumstances in relation to any individual or entity. All reasonable efforts have been made by Accounts Advice Centre to provide accurate and up-to-date information, however, there can be no guarantee that such information is accurate on the date it is received or that it will continue to remain so. This information should not be acted upon without full and comprehensive, specialist professional tax advice.

Ireland has legislated for the Pillar Two rules with effect from:

• 1^st January 2024 for the Income Inclusion Rule and
• 1^st January 2025 for the Under Taxed Profits Rule

The Pillar Two rules provide that income of large groups is taxed at a minimum effective tax rate of 15% on a jurisdictional basis.

These rules apply where the annual global turnover of the group exceeds €750m in two of the previous four fiscal years.

Ireland signed up to the OECD Two Pillar agreement in October 2021.

The new minimum tax rate, which is effective from the 1^st of January 2024, sees an increase from the previous corporate tax rate of 12.5% to 15%, for certain large companies.

Ireland will continue to apply the 12½% corporation tax rate for businesses outside the scope of the agreement, i.e. businesses with revenues of less than €750 million.

There are special rules for intermediate parent entities and partially owned parent entities as well as certain exclusions.

It is understood that Revenue estimates approximately 1,600 multinational entity groups with a presence in Ireland will come in scope of Pillar 2.

In addition, the EU Minimum Tax Directive (2022/2523) provides the option for Member States to implement a Qualified Domestic Top-up Tax (QDMTT).

A domestic top-up tax, introduced in Ireland from 1^st January 2024, allows the Irish Exchequer to collect any top-up tax due from domestic entities before the application of IIR or UTPR top up tax.

The QDTT paid in Ireland is creditable against any IIR or UTPR top up tax liability arising elsewhere within the group.

It is important to keep in mind that IIR or UTPR top up tax may not apply in relation to domestic entities in circumstances where the domestic top-up tax has been granted Safe Harbour status by the OECD.

As there will be separate pay and file obligations and standalone returns for IIR, UTPR and QDTT, Revenue guidance material will be provided, in due course, in relation to all administrative requirements.

For further information, please click: https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32022L2523

Please be aware that the information contained in this article is of a general nature.  It is not intended to address specific circumstances in relation to any individual or entity. All reasonable efforts have been made by Accounts Advice Centre to provide accurate and up-to-date information, however, there can be no guarantee that such information is accurate on the date it is received or that it will continue to remain so. This information should not be acted upon without full and comprehensive, specialist professional tax advice.

From 1^st January 2024 employers will be required to report, collect and remit Income Tax, USC and PRSI, under the PAYE system, on any gains arising on the exercise, assignment or release of unapproved share options by employees and/or directors.  From 1^st January 2024, the tax collection method for share option gains will become a real-time payroll withholding obligation for the employer instead of the individual self-assessment system known as the Relevant Tax on Share Options (RTSO) system.

These new rules are a welcome development for employees and directors who, from 1^st January 2024, will no longer be responsible for filing and submitting Income Tax, USC and PRSI arising on the exercise of their share options.

Employees may still, however, be required to file an Income Tax Return for a relevant tax year, if that individual remains a “chargeable person.”

The due date for such returns is 31st March 2024 and there are different returns required depending on the type of share scheme operated / share remuneration provided.

Penalties for failure to file Returns may apply.

The following Forms are required for the following share schemes:

1. Form RSS1 for share options and any other rights to acquire shares or assets awarded to employees and Directors. https://www.revenue.ie/en/employing-people/documents/form-rss1.xlsm

2. Form KEEP1 – Key Employee Engagement Programme (KEEP) – Details of qualifying share options granted. https://www.revenue.ie/en/employing-people/documents/form-keep1.xlsm

3. Form ESOT1 – Employee Share Ownership Trust (ESOT) – Details of approved Employee Share Ownership Trust (ESOT) schemes. https://www.revenue.ie/en/employing-people/documents/form-esot1.pdf

4. Form ESS1 for details of Approved Profit Sharing (APSS) schemes. https://www.revenue.ie/en/employing-people/documents/form-ess1.xlsm

5. Form SRS01 for details of Save As You Earn Schemes (SAYE) https://www.revenue.ie/en/employing-people/documents/form-srso1.pdf

6. Form ESA – Restricted Stock Units (RSUs), Discounted / Free / Matching Shares, Employee Share Purchase Plans (ESPP), Restricted Shares, Convertible Shares, Forfeitable Shares, Phantom Shares, Stock Appreciation Rights, Growth/Hurdle/Flowering Shares and other Shares. https://www.revenue.ie/en/employing-people/documents/form-esa.xlsm

In circumstances where employers have globally mobile employees working outside Ireland for part of the year, the gains arising on the exercise of the stock option may need to be apportioned based on the number of days those employees worked in Ireland during the grant to vest period.  Employers will need to monitor the Irish workdays for these employees throughout the entire vesting period of the options.  Employers will also need to determine whether the stock option gain is exempt from PRSI.

Consideration must be given as to how the tax liabilities will be funded, especially in situations where there is insufficient income to cover the payroll taxes, where the globally mobile employee is not subject to Irish tax at the date of exercise but a portion of the gain has given rise to an Irish tax liability or where the employee or director has ceased their employment with the organisation. For example, by introducing a “sell to cover” mechanism.

In Summary:

• The RTSO system will be abolished with effect from 1^st January 2024.

• From 1^st January 2024, taxes arising on stock option gains will be collected through the payroll system.

• Currently there are no proposed changes that affect the obligation to file an annual RSS1 informational return by the employer. Therefore, the reporting obligations for share options by employers remain due on or before 31^st March of the following tax year.

• Share Option gains realised before 31^st December 2023 will be liable to tax under the self-assessment system with the employee being responsible for filing a Form RTSO1 along with the relevant tax payment within 30 days of the date of exercise.

Please be aware that the information contained in this article is of a general nature.  It is not intended to address specific circumstances in relation to any individual or entity. All reasonable efforts have been made by Accounts Advice Centre to provide accurate and up-to-date information, however, there can be no guarantee that such information is accurate on the date it is received or that it will continue to remain so. This information should not be acted upon without full and comprehensive, specialist professional tax advice.

Filing an annual return is a legal obligation for every company registered in Ireland.  This is a requirement even if the company hasn’t generated a profit or hasn’t started trading.

There is an obligation on the company officers, being the Directors and Secretaries, to ensure that the annual return is correctly filed with the Companies Registration office.

Failure to comply with this regulation can have serious implications including:

1. Late filing fees
2. loss of audit exemption for two years.
3. Strike off and dissolution of the company
4. Prosecution of the Company and/or its Director

For further information, please click link: CRO – Annual Return – Missed Deadlines

An annual return, also known as Form B1, is a document that every company registered in Ireland must file with the Companies Registration Office (CRO) every year.

An Irish company’s first Annual Return is due within six months of incorporation. No accounts are required with the first Annual Return.

All subsequent Annual Returns must be filed every twelve months.

For second and subsequent annual returns, companies are required to file their annual return or B1, along with their financial statements, within 56 days of the ARD.

An Annual Return Date (ARD) of a company is the latest date to which an annual return must be made up.

An Annual Return Date (ARD) must be filed no more than nine months from the financial year end. For example, if the Irish company has a 31^st December year end, their latest annual return date would be 30th September.

The Annual Return date can be changed from the second Annual Return onwards but no more than once every five years.  A company cannot, however, extend the ARD more than six months from the original ARD and no more than nine months from the financial year end.  The ARD can be set to a later date by filing Form B1B73.  For further information, please click: https://www.cro.ie/en-ie/Annual-Return/Financial-Year-End-Date

The annual return must accurately reflect the company’s details as of the Annual Return Date and include information about the company directors, secretary, registered office, share capital, shareholder details as well as confirmation that the financial statements are attached.  Since 11^th June 2023 Directors are required to disclose their PPS numbers when filing the B1 form and if they do not have a PPSN, RBO numbers and/or VINs can be used.

It is the responsibility of the Board to approve the financial statements for a company. Therefore, it is advisable that a meeting should be held before the financial statements are filed in the CRO.

To file an Annual Return:

1. Complete the B1 Form through CORE or an approved software package.
2. Upload the signed financial statements and/or other required documents in PDF.
3. Download a signature page or request signature page by email.
4. It’s important to keep in mind that the signed financial statements must be uploaded before the signature page is generated.
5. The signature page must be signed by two company officers e.g. one Director and one Secretary. In other words, it cannot be the same person.
6. The signature page cannot be digitally signed.
7. There is an option for an Electronic Filing Agent to sign on behalf of the company. To do this, a Form B77 must be filed.
8. There is an online filing fee of €20.

For further information, please click: https://www.cro.ie/en-ie/Annual-Return/Filing-Electronically

Central Register of Beneficial Ownership

All Irish companies now have a statutory obligation to file their Beneficial Ownership information with the Central Register of Beneficial Ownership within five months from the date of incorporation.

For existing companies, if there is any change in the beneficial ownership details, the Central Register of Beneficial Ownership must be updated within fourteen days of the change.

Unlike the B1 Annual Return above, there is no requirement to make an annual filing with the RBO.

Please be aware that the information contained in this article is of a general nature.  It is not intended to address specific circumstances in relation to any individual or entity. All reasonable efforts have been made by Accounts Advice Centre to provide accurate and up-to-date information, however, there can be no guarantee that such information is accurate on the date it is received or that it will continue to remain so.. This information should not be acted upon without full and comprehensive, specialist professional advice.

The Companies Registration Office (CRO), under Section 35 of The Companies Corporate Enforcement Act (2021), will require Company Directors to provide their personal public service numbers (PPSNs) when filing the following forms. This will be a mandatory requirement from Sunday, 11^th June 2023:

1. Form A1- Company incorporation,
2. Form B1 – Annual return,
3. Form B10 – Change of director and, or in their particulars,
4. Form B69 – Notification by the individual that he/she/they has/have ceased to be a director or secretary.

Directors’ PPSNs will be required for validation purposes only.  PPS numbers, RBO numbers and VINs will not be accessible on the public register.

The purpose of the new disclosure requirement is to reduce the risk of identity theft by introducing additional identity validation checks.  This will affect individuals who may, wrongly, hold more than twenty five active directorships under different name variations.

It is important to note that non-compliance will constitute a Category 4 offence.

Please be aware that if the PPS Number does not match the PPS Number held by the Department of Employment and Social Protection, this may result in the submission being rejected.  Therefore, to avoid any discrepancies and delays with filings, Directors should act now to make sure that the information held by the DEASP is consistent with that held by the CRO.  It’s important to keep in mind that CRO rejections could lead to late filing penalties and delays in meeting annual return filing dates.

In circumstances, where a director does not have a PPS Number, but has been issued with an RBO number in connection with filings with the Central Register of Beneficial Ownership, this RBO number can be used for the relevant CRO filings.

In situations where a director does not have either a PPS number or an RBO transaction number, they must apply to the CRO for an “Identified Person Number” by means of a Form VIF i.e. Declaration as to Verification of Identity.

The VIF requires the name, address, date of birth and nationality of the individual. It must be declared as true by the director and verified by a notary.

TO DO

• Directors should check that their personal details are consistent with those on record with the Department of Social Protection.  Where DSP records need to be checked or amended, please be aware that Directors must do so themselves, as filing agents are unable to do so on their behalf

• Directors without a PPSN or RBO number should take steps to obtain a VIN.

For further information, please click the link below:

https://www.cro.ie/en-ie/About-CRO/Whats-New/PPSN-FAQ?_cldee=6g_4nKxbwJzYd6gOdHH3WoVFU8RM7T2gir_xOhjUaYHBA2OGEzy3hGo7s18ZbYuP&recipientid=contact-7f5d2b33fbf9e71180fb3863bb358f88-9a94001c46624edb84969e8300fbbb53&esid=6bd3fe70-e006-ee11-8f6e-6045bd905fa8

Please be aware that the information contained in this article is of a general nature.  It is not intended to address specific circumstances in relation to any individual or entity. All reasonable efforts have been made by Accounts Advice Centre to provide accurate and up-to-date information, however, there can be no guarantee that such information is accurate on the date it is received or that it will continue to remain so.. This information should not be acted upon without full and comprehensive, specialist professional advice.

From 10^th February 2023 the Revenue Commissioners are posting out letters to taxpayers who are currently registered for Income Tax but who have not submitted Income Tax Returns for years of assessment up to and including 2021.

The letters state:

“Based on a review of your Income Tax records, you have not filed any self-assessed Income Tax returns for years up to and including 2021.”

Taxpayers should start receiving such letters from 13^th February onwards.

Please be aware that your Tax Agent won’t receive a copy of this notice.

What are you required to do?

In the event that the taxpayer is no longer deemed to be a “chargeable person” and, therefore, is no longer required to file an Income Tax Returns, he/she/they should cancel the Income Tax registration.

The term “chargeable person” applies to an individual who:

1. Is self employed or
2. Is a Director of an Irish company or
3. Has other sources of income in addition to a PAYE salary.

An individual who is in receipt of PAYE income as well as non-PAYE income will not, however, be regarded as a “chargeable person” provided:

1. the total gross income from non-PAYE sources is less than €30,000 and
2. the net assessable income is less than €5,000 and
3. the tax is collected by reducing his/her/their tax credits through the PAYE system.

A chargeable person is obliged to file an annual Income Tax Return through the self-assessment system.

How can you cancel your IT registration?

This can be done online via ROS or by completing a Form TRCN1 which is available on the Revenue website.

What happens if you are considered to be a “Chargeable Person”?

If the taxpayer is considered a “chargeable person” but has not filed Income Tax Returns up to 2021, the letter is deemed to be a Final Reminder to file all outstanding income tax returns.

If the taxpayer does not file the outstanding Income Tax Returns or cancel the registration within 21 days of the letter, Revenue will cease the income tax registration without further notice.

Once the Income Tax registration is ceased, if the taxpayer wishes to re-register for income tax he/she/they will be required to submit an online application via ROS.

Final Points

The Notice states:

“You should note that, where further information comes to Revenue’s attention that you were a chargeable person for any relevant tax year, Revenue reserves the right to reinstate your Income Tax registration.

The non-filing of a required tax return by chargeable persons can result in further contact from Revenue, including a follow-up compliance intervention. Non-filing of a return where required is also an offence for which a person can be prosecuted.”

If you have received a Cancellation of your Income Tax Registration Notice and you require assistance filing outstanding Income Tax Returns, please contact us at queries@accountsadvicecentre.ie

Please be aware that the information contained in this article is of a general nature.  It is not intended to address specific circumstances in relation to any individual or entity. All reasonable efforts have been made by Accounts Advice Centre to provide accurate and up-to-date information, however, there can be no guarantee that such information is accurate on the date it is received or that it will continue to remain so.. This information should not be acted upon without full and comprehensive, specialist professional tax advice.

On 5^th August 2022 the Irish Revenue Commissioners issued a new Tax and Duty Manual Part 04-06-03, which provides guidance on the tax deductibility of Digital Services Taxes (DSTs).

For full information, please click: https://www.revenue.ie/en/tax-professionals/tdm/income-tax-capital-gains-tax-corporation-tax/part-04/04-06-03.pdf

The guidance provides that certain Digital Services Taxes (DSTs) incurred wholly and exclusively for the purposes of a trade (taxable under Case I and Case II Schedule D) are deductible in calculating the income of that trade for the purposes of computing Irish corporation tax.

The Revenue’s position is that Digital Services Taxes are a turnover tax.

They are levied on revenues associated with the provision of digital services and advertising and not on the profits.

The guidance provides that, in circumstances where the following DSTs have been incurred wholly and exclusively for the purposes of a trade, the Irish Revenue Commissioners will accept that they are deductible expenses in calculating the income of that trade:

• France’s Digital Services Tax;
• Italy’s Digital Services Tax;
• Turkey’s Digital Services Tax;
• United Kingdom’s Digital Services Tax; and
• India’s Equalisation Levy.

The Guidance material doesn’t distinguish between the two forms of equalisation levy under the Indian regime. At this time there is no clear guidance available however, it would be expected that that since both types of levy are so similar that both should be covered. If this situation applies to you, it is advisable to contact the Irish Revenue Commissioners to seek clarification via MyEnquiries.

This Guidance should be interpreted as an initial list.  According to The Revenue Commissioners “The list of DSTs above may be updated as required.”

When setting up a foreign company in Ireland, the first step is to decide on the most appropriate structure – a branch or a subsidiary company.

• A branch is not a separate legal entity in its own right.
• Instead, it’s an arm of the external company operating in Ireland.
• In other words, a branch office is an extension of the parent company abroad.
• A branch performs the same business operations and operates under the legal umbrella of the parent/holding/external company.
• The parent/external/holding company has complete control over any of the branch’s decisions.
• All liabilities incurred by the branch are ultimately those of the head office located overseas.

• A subsidiary, on the other hand, is an independent legal entity.
• It can be either partially or wholly owned by the foreign company.
• It has the same compliance requirements as a that of a Limited Company in Ireland.
• A subsidiary is generally considered to be more tax-efficient than a branch because it’s liable to Irish Corporation Tax on its worldwide income.
• The subsidiary will be required to file an A1 and Constitution with the Companies Registration Office.

SUBSIDIARY

Registering a subsidiary is just like setting up a new company in Ireland.

It is an independent legal entity which is different to the parent or holding company.

Incorporation of a subsidiary requires the completion of Irish Companies Registration Office (CRO) statutory documentation and the drafting of a constitution. The only difference is that the parent company must be either the sole or majority shareholder of the new company i.e. holding at least 51% of the shares.

The subsidiary is generally registered a private company limited by shares.

When setting up a company with another company as the shareholder, someone must be appointed who is authorised to sign on behalf of the company.  This would usually be a Director or another authorised person.

The liability of the parent company is limited to the share capital invested in the Irish subsidiary

With a Parent company as the shareholder, all the existing shareholders of that parent company have the same percentage stake in the new Irish subsidiary.

As with all new Irish companies, the subsidiary will require at least one director who is an EEA resident and a company secretary.  It will also be required to have a registered office address and a trading office within the State.  The company must purchase an insurance bond if none of the directors are EEA resident, unless, the subsidiary can demonstrate that it has a “real and continuous economic link” to Ireland.

An Irish subsidiary company can avail of the 12½% Corporation Tax rate on all sales, both within Ireland as well as internationally.

BRANCH

A branch is not a separate legal entity.

It is generally considered to be an extension of its parent company abroad.

The parent company is fully liable for the Branch and its activities.

An Irish branch will only be allowed to carry out the same activities as the parent company.

In accordance with the Companies Act 2014, a branch must be registered within thirty days of its establishment in Ireland.

As a branch is deemed to be an extension of the external company, its financial statements would be consolidated with those of the parent company and legally it cannot enter into contracts or own property in its own right.

An Irish branch company only qualifies for the 12½% Corporation Tax on sales within Ireland.

A Branch is required to file an annual Return with a set of financial statements of the external company, with the CRO.

Disclaimer This article is for guidance purposes only. Please be aware that it does not constitute professional advice. No liability is accepted by Accounts Advice Centre for any action taken or not taken based on the information contained in this article. Specific, independent professional advice, should always be obtained in line with the full, complete and unambiguous facts of each individual situation before any action is taken or not taken.  Any and all information is subject to change.

On 29th July 2019 the Central Register of Beneficial Ownership was launched in Ireland.  This new legal requirement forms part of Ireland’s implementation of the 4th EU Anti-Money Laundering Directive.

The new Central Register of Beneficial Ownership requires that all companies file details of their Ultimate Beneficial Owners with the Companies Registrations Office.

Under the Regulations, the commencement date for the obligation to file on the Central Register was 22^nd June 2019 and companies must deliver their beneficial ownership information to the CRO by 22^nd November 2019.

Going forward, newly incorporated companies will have five months from the date of incorporation to register their information.

It is considered a breach of statutory duty not to file within the deadline date.

This is a new filing requirement, in addition to the other usual requirements, for example, filing a B1 annual return.

A beneficial owner is defined an individual/natural person who owns or controls directly or indirectly:

1. more than 25% of the equity
2. more than 25% of the voting rights or
3. has capacity to control the company by other means.

In situations where no beneficial owners can be identified, the names of the directors, senior managers or any other individual who exerts a dominant influence within the company must be entered in the register of beneficial owners.  In other words, where the beneficial owners are unknown, the company must take “all reasonable steps” to ensure the beneficial ownership information is gathered and recorded on the register.

The following information is required to be filed with the RBO in respect of each beneficial owner:

1. The name,
2. Date of Birth,
3. Nationality,
4. Residential Address,
5. PPS Number, if applicable – The Registrar will not disclose any PPS Numbers and will only use them for verification purposes.
6. A Statement of the nature and extent of the ownership interest held or extent of the control exercised,
7. The date of entry on the register as a beneficial owner,
8. The date of ceasing to be a beneficial owner.

For non-Irish residents who do not hold a PPS number, a Transaction Number must be requested from the Companies Registration Office.  This is done by completing and submitting a Form BEN2 and having it notarised in the relevant jurisdiction.

Failure to comply with the Regulations is an offence and shall be liable on summary conviction to a Class A fine, or conviction on indictment to a fine up to €500,000.

Going forward, any changes to a Company’s Internal Beneficial Ownership Register must be updated in the Central Register within fourteen days of the change having occurred.

Once a company has been dissolved the registrar will delete all information held in relation to that entity, after the expiration of ten years.

Who has access to this information?

As required by EU anti-money laundering laws, members of the public will have restricted access to the CRBO including:

• The name, month/year of birth, country of residence and nationality of each beneficial owner.
• The nature and extent of the interest held or the nature and extent of the control exercised by the beneficial owner.

The 2019 regulations provide for the following to have unrestricted access to the Central Register:

• An Garda Síochána
• The Revenue Commissioners
• Members of the Financial Intelligence Unit Ireland
• The Criminal Assets Bureau

If you are facing retirement or redundancy, it is important to understand the tax treatment of your severance package. The following attract beneficial tax treatment:

1. Statutory redundancy payments
2. Ex-gratia Termination payments
3. Pension lump sums

Statutory redundancy payments

Statutory redundancy payments are tax exempt.  They are based on two weeks’ pay for every year of service plus one additional week’s pay with maximum weekly earnings capped at €600 per week.  Income in excess of €31,200 is ignored when calculating Statutory redundancy payments.

Ex-gratia termination payment

Lump sum payments paid by an employer on retirement or redundancy may be taxable.

All or part of the ex gratia termination payment may qualify for tax relief.

The termination payment tax reliefs are not available, however, to any payments made to an employee under the terms of their employment contract. In other words, any contractual payments made by the company to its employee are treated in the same way as a salary payment.

Only complete years are counted for purposes of the reliefs i.e. part of a year cannot be taken into account for the purposes of the calculation.

There are three types of tax reliefs available:

1. Basic Exemption – This exemption is calculated as €10,160 plus €765 for each complete year of service.

2. Increased Basic Exemption – The Basic exemption may be increased by a further €10,000 less the current actuarial value of any tax free pension lump sum receivable now or in the future from the company/occupational pension scheme. This relief is available provided the employee hasn’t claimed an exemption in excess of the Basic Exemption within the previous ten years.

3. Standard Capital Superannuation Benefit (SCSB) relief – This Relief is based on the employees’ average annual remuneration for the last 36 months up to the date of termination.

The tax free amount is calculated as follows:

(A × B) − C

15

where

A = the average remuneration for the last 36 months of service up to the date of termination.  The value of any taxable benefits can be included in the figure for emoluments.

B = The number of complete years of service.

C = Any tax free lump sum received or receivable under the employer/occupational pension scheme.

There is a lifetime cap of €200,000 on the tax-free amount of a termination payment an employee is entitled to receive.

The amount of the termination payment in excess of the relevant exemption/relief is liable to Income Tax and Universal Social Charge at the employee’s marginal rates.

There is no employee and employer’s PRSI payable on a termination payment.

Before making any decision, please keep in mind that claiming either (i) the Increased Basic Exemption or (ii) the SCSB Relief can affect an employee’s ability to receive a tax-free lump sum from their employer pension scheme on retirement.

Pension Lump Sums

When you retire, you can opt to take a tax-free retirement lump sum which is capped at €200,000 under current legislation.

The amount between €200,001 and €500,000 is taxable at the standard rate of tax being 20%

Any amount over €500,000 is taxed under the Pay As You Earn system at the taxpayer’s marginal tax rate of 40%.

For further information on Termination Payments, please click: https://www.revenue.ie/en/tax-professionals/tdm/income-tax-capital-gains-tax-corporation-tax/part-05/05-05-19.pdf

Please be aware that the information contained in this article is of a general nature.  It is not intended to address specific circumstances in relation to any individual or entity. All reasonable efforts have been made by Accounts Advice Centre to provide accurate and up-to-date information, however, there can be no guarantee that such information is accurate on the date it is received or that it will continue to remain so. This information should not be acted upon without full and comprehensive, specialist professional tax advice.