24 Jan 23
Ireland Outlook 2023 – Navigating a challenging year
2022 marked a turbulent year for many companies operating in Ireland, and indeed across the globe. Beginning with cautious optimism as Covid-19 restrictions ended, a new series of challenges soon presented in the form of supply chain issues, an energy crisis and rising inflation. Many of these challenges look set to continue into 2023 against a backdrop of tough economic headwinds.
While Ireland’s highly globalised economy is particularly exposed to international uncertainty, there have been a number of positive signals from the domestic economy. Despite recent announcements in the tech sector, Ireland’s national unemployment rate has remained steady at 4.3% and is projected to stay at a relatively low rate over the coming year. The appetite for foreign direct investment in Ireland remains strong with a mix of both new and existing investors. Furthermore, Ireland’s public finances exhibited a strong recovery following the pandemic and saw a bumper year in terms of tax revenue with corporate tax receipts exceeding €21 billion by year end.
Undoubtedly, a key concern for many businesses in 2023 will be inflationary pressure. Inflation in Ireland grew by 8.2% in the 12 months to December 2022 according to consumer price index data.
In planning for the year ahead, companies operating in Ireland should be conscious of the various business support regimes available, while also planning for regulatory changes which will enter into force in 2023.
Expansion of business supports and tax credits
Against the backdrop of rising costs faced by individuals and businesses across Ireland, Budget 2023 introduced a wide range of additional supports for businesses operating in Ireland.
These changes include amendments to the R&D tax credit regime, supports for the digital gaming and film sectors, extension and update of the Knowledge Development Box scheme and the introduction of the Temporary Business Energy Support Scheme.
Sample of supports and credits available
|Supports and Credits|
|Intellectual Property Regime||Tax depreciation allowance for capital expenditure by a company which is undertaking a trade or acquisition of qualifying Intellectual Property (IP) assets.|
|Research and Development Tax Credit||Tax credit of 25% for qualifying R&D expenditure.|
|Knowledge Development Box||An effective 10% corporate tax rate on profits arising from qualifying assets.|
|Start-up Company Exemption||Corporation tax relief which applies to certain start-up companies.|
|Temporary Business Energy Support Scheme||Qualifying businesses can claim 40% of the increase in energy bills.|
Understanding and taking advantage of the full suite of supports and credits available will be critical for businesses operating in Ireland in the year ahead.
Big changes for employers in Ireland
Another key trend for Irish businesses in 2023, will be getting to grips with the variety of changes to employee rights and entitlements. Employers in Ireland will need to update practices and operations with respect to payroll, pensions, leave and other benefit reporting requirements.
Pension Auto Enrolment
2024 will see the introduction of pension auto-enrolment for the first time in Ireland, a change which will likely require significant resourcing from companies. All private sector employees between the ages of 23 and 60, with gross earnings over €20,000 per annum who are not currently included in a private pension arrangement or who are included in a private pension arrangement which does not meet the minimum standard, will need to be identified and registered under the scheme. These changes will have consequences for all companies including those who may have a pension scheme in place. According to studies, over 50% of large employers in Ireland with an existing pension scheme will need to adjust their current operating procedures to be ready for auto-enrolment.
Gender Pay Gap reporting
This year will also see the introduction of reporting requirements under the Gender Pay Gap Information Act 2021. All Irish employers employing over 250 staff in Ireland are required to submit figures with respect to a gender pay gap which may exist within their organisation. This obligation will extend to employers with 150 or more staff in June 2024 and 50 or more staff in June 2025.
There have also been a number of changes to workers’ rights such as statutory sick pay and working parents leave entitlements which along with the changes mentioned above will require careful planning and monitoring to ensure compliance.
Continued progress on OECD BEPS 2.0
Another major theme for businesses in 2023 will be the developments made in the OECD’s Base Erosion and Profit Shifting project. The two-pillar plan, which has been brokered by the OECD between 137 countries, focuses on addressing the tax challenges of an increasingly digitalised global economy.
|Two Pillar Plan|
|1||Key provisions to address the taxation of digital activity. Revision to profit allocation and nexus rules to grant a portion of corporate tax to market jurisdictions tied to sales in that jurisdiction and a fixed return for baseline marketing and distribution activities in market jurisdictions in line with the arm’s length standard.|
|2||Global Anti-Base Erosion rules (GloBE) such as the Income Inclusion Rule (IIR), the Undertaxed Profits Rule (UTPR) and the Subject-To-Tax rule (STT). Implementation of a minimum global corporate tax rate of 15%.|
The OECD has set an ambitious timeline for the implementation of Base Erosion and Profit Shifting (BEPS). On Pillar 2, the intention is to publish the GloBE implementation framework and the STT rule by the end of 2022. Currently, only the US has adopted legislation to implement a 15% global minimum tax rate, while other participating countries are at varying stages of implementation. The EU has produced a draft directive on the GloBE rules, published in December 2021, but has yet to reach a unanimous agreement. Several countries, including Germany and France, have made clear their ambition to progress with an enhanced cooperation agreement if a unanimous agreement cannot be reached. The UK has announced its intention to introduce legislation starting with Pillar 2. UK Chancellor Jeremy Hunt announced plans to bring forth legislation on the IIR in the UK’s Spring Finance Bill 2023 and UTPR legislation later in 2023, which will likely take effect in 2025. Other countries, such as Switzerland, Canada, Singapore and Jersey, are all assessing how GloBE rules can be best adopted.
In comparison, progress on Pillar 1 has been much slower, with a lot of rules yet to be finalised. In September, the OECD held a public consultation meeting and subsequently produced an updated document the soundings for which closed in Q4 2022. The OECD also continues work on producing a multinational convention on Pillar 1 for when the rules have been agreed upon, with the hope that this might be ready for signing by mid-2023.
In his Budget 2023 address, Irish Finance Minister Paschal Donohoe referenced the ongoing negotiations on BEPS while also reaffirming commitment to the 12.5% corporate tax rate for businesses falling out of scope of BEPS. It is projected that BEPS will affect approximately 1,500 Irish businesses and the developments will be monitored closely throughout the year ahead.
2023 looks set to be a challenging year for companies operating in Ireland. Inflation in Ireland is projected to have peaked in Q4 2022 and is expected by economic observers to slowly decline throughout 2023 and 2024. That said, businesses should be looking to ensure they fully maximise the various business support and tax credit regimes available to them as they weather the pressure of increased costs. Firms impacted by regulatory changes should conduct an analysis of the requirements against their current operations to ensure compliance.