On 27 September 2022, Paschal Donohoe, the Finance Minister of Ireland announced the Budget 2023. The main tax measures proposed in budget 2023 include:
Income Tax
- An increase of €3,200 in the income tax standard rate cut-off point for all earners, from €36,800 to €40,000 for single individuals and from €45,800 to €49,000 for married couples/civil partners with one earner;
- An increase of €75 in the Personal Tax Credit from €1,700 to €1,775;
- An increase of €75 in the Employee Tax Credit from €1,700 to €1,775;
- An increase of €75 in the Earned Income Credit from €1,700 to €1,775;
- An increase of €100 in the Home Carer Tax Credit from €1,600 to €1,700.
Research and Development Tax Credit
The Research and Development (R&D) tax credit provides a 25% tax credit for all qualifying R&D expenditure. The R&D tax credit was reviewed this year, along with the KDB. In order to align with new norms in international tax, a number of changes to the operation of the R&D tax credit are being announced in Budget 2023. The changes are all adjustments to the timing of payment of the credit, no changes are being made to the quantum of credit that a company may earn. As a result, the changes are net neutral in budgetary terms.
The current system of offset against corporation tax liabilities and payment in three payable instalments is being changed to a new fixed three-year payment system. A company will have an option to call for payment of their eligible R&D tax credit or to request for it to be offset against other tax liabilities, and existing caps on the payable element of the credit are being removed. The first €25,000 of a claim will now be payable in the first year, to provide a cash-flow benefit for smaller research & development projects and to encourage more companies to engage with the regime.
Transitional measures will be in place for one year, to smooth the transition to the new payment system for companies that are already engaged in research & development activities.
Knowledge Development Box (KDB)
KDB is an intellectual property (IP) regime which provides for an effective 6.25% rate of corporation tax on certain income from qualifying IP assets. It is currently available for accounting periods commencing before 1 January 2023. The KDB was reviewed this year, along with the R&D tax credit.
Budget 2023 provides for the extension of the KDB for 4 years, to allow the relief to be available for accounting periods commencing before 1 January 2027.
The KDB will be impacted by changes in the international tax environment, specifically the Subject to Tax Rule (STTR), which is part of the OECD Pillar Two agreement. In order to prepare for implementation of the agreement, legislation for an increase in the effective rate of the KDB to 10% is being introduced, to be brought into effect by Ministerial commencement order once agreement is reached at the OECD/G20 Inclusive Framework on STTR implementation.
