Finance Bill 2021 - corporate updates

Taxation of non-resident corporate landlords

Section 25(1) TCA 1997 provides that a company that is not resident in Ireland is only subject to corporation tax if it carries on a trade-in Ireland through a branch or agency. A non-resident company that does not have a branch or agency in Ireland is subject to income tax at the standard rate of 20% on any income derived from sources in Ireland. In most cases, this would be in the form of rental income from Irish situate property.  

Section 18 of Finance Bill 2021 introduces a change to the taxation of non-resident corporate landlords, by applying corporation tax at the higher rate of 25% to such income. The finance bill includes the following measures for companies coming within the charge of corporation tax as a result of the transition from income tax.

• The bill allows losses and capital allowances to be carried forward from the income tax system to the corporation tax system without restriction.
• Balancing charges or allowances arising out of assets held before 1 January 2022 (the effective date) will be deductible or taxable at an effective rate of 20%
• The due date for preliminary corporation tax has also been amended where an accounting period ends between 1 January 2022 and 30 June 2022. In such cases, the preliminary tax will be payable on or before 23 June 2022 where the payment is made via ROS

The section also brings within the charge to corporate tax, capital gains accruing to such companies. The effective rate remains at 33%. 

The changes under this section apply to profits and gains accruing on or after 1 January 2022.

Dividends paid out of foreign profits

Under section 129 TCA 1997, dividends received by one Irish tax resident company from another Irish tax resident company are regarded as Franked Investment Income and not taxed in Ireland. However, Section 129A contains anti-avoidance provisions which bring within the charge to tax dividends paid to Irish holding companies by their Irish tax resident subsidiaries where those subsidiaries migrated their tax residence into Ireland and the profits out of which the dividend was paid arose while the company was not tax resident in Ireland. This anti-avoidance provision also covers profits made by the subsidiary after migration into Ireland but before the end of an accounting period, thereby viewing such income as a ‘foreign profit’ where the company pays an interim dividend before the end of its first accounting period after becoming Irish tax resident.

Section 29 of the Finance Bill 2021 amends section 129A of the TCA 1997 to exclude certain profits from the scope of the anti-avoidance legislation. As a result of the amendment, where a company pays an interim dividend out of profits arising in an accounting period in which the company is Irish resident, a portion of such distributions will not be deemed to have been earned before the company was resident in Ireland.

The changes apply to distributions made on or after the passing of the Finance Act 2021.

Corporation tax relief for certain start-up companies

Certain start-up companies whose total corporation tax for the period is equal to or lower than €40,000 can qualify for the start-up relief in the first 3 years of trading under section 486C TCA 1997. The tax relief is the lower of €40,000 or the employers PRSI paid by the company for all employees, subject to a maximum PRSI payment of €5,000 per employee.  Where the tax liability is between €40,000 and €60,000, marginal relief applies.

The relief is currently available for companies whose trade commenced between 01 January 2009 and 31 December 2021.

Section 34 of the Finance Bill 2021 introduces the following changes:

• An extension of the relief by a further 5 years to 31 December 2026; and
• An extension to the period of availability from the first 3 years to the first 5 years of trading. The extension applies to all qualifying companies whose trade commenced on or after 1 January 2018.

This is a welcome measure for companies whose qualifying period was coming to an end and had not utilised the relief due to losses arising from the Covid-19 pandemic.

If you have any questions in relation to the above, or if you would like to discuss this topic further, please contact a member of the Mazars corporate tax team below:

November 2021