In June of this year, the Minister for Finance launched a public consultation to seek the views of interested parties on the role the tax system can play in encouraging entrepreneurship in Ireland. The purpose of the consultation was ostensibly to assess the current regime, to determine what was and was not working, as well as to consider other options which could better encourage entrepreneurship.
Since the launch of the public consultation various employers’ groups, businesses and professional representative bodies have taken the opportunity to respond, and the Minister has undertaken to consider any tax policies identified through this process when formulating his budget for 2016.
This initiative is not before time. Ireland as a place to start a new business suffers in comparison with other jurisdictions where the tax landscape affords greater opportunities for business start-ups.
One area which has been signalled as requiring immediate attention is with respect to the tax relief afforded by the Employment and Investment Incentive (EII) scheme which replaced the BES scheme a few years ago. This relief is meant to help companies raise finance by offering tax relief to investors on the investment for new shares in companies.
Previously, investors used to get relief at 41% on the amount they invested in the year of investment. However, in 2011, the Government changed how the relief applied so that relief at 30% was given in the year of investment with the balance of the relief available in the fourth year following the investment, assuming that certain criteria has been met by the company.
The staggering of the relief has reduced dramatically its attractiveness to potential investors with the upshot being that since the changes were introduced the amount invested under this scheme has more than halved.
It is therefore crucial that the Minister heeds the call for the tax relief in its entirety to be given to the investor in the year of investment. This would have the effect of restoring the take up of the relief to previous levels which in turn would provide increased access to capital for companies at the start-up phase or indeed for existing companies looking to expand.
The effectiveness of the EII scheme could be further increased if Ireland was to adopt the UK model which exempts from Capital Gains Tax any gains on investments by these types of investors. Currently, the standard Capital Gains Tax charge of 33% applies to gains on EII investments in Ireland.
The UK model should also be followed when it comes to gains made by entrepreneurs themselves on the sale of business assets. In the UK a reduced rate of 10% applies on qualifying sales. In Ireland the standard rate of 33% applies in the main. The disparity in the rates between both countries makes Ireland a less attractive place to start a business than its closest neighbour and cannot be allowed to continue.
Other changes to the personal tax regime in Ireland are also required in order to attract, incentivise and retain entrepreneurial talent. And these changes, including the increase in the entry point for the top marginal rate of tax and the elimination of the inequitable disparity of treatment between employees and the self-employed have once more being referred to through this process.
Enda Kenny’s efforts to make Ireland â€œthe best small country in the world in which to do businessâ€ has been maligned in some quarters but this initiative by his Department of Finance has given his Government opportunity to put some meat on those aspirational bones. It is hoped that when Budget 2016 is being drafted that the opportunities presented here are grasped with both hands.