Ireland Outlook 2024

The European Commission forecasts indicate that Ireland’s economy contracted by 0.9% in 2023, the first shrinking of the economy in over a decade, after stellar economic growth in both 2022 and 2021 (9.4% and 15% respectively).

Ireland had been the fastest growing economy in Europe for several years, but in 2023, it’s heavily export-reliant economy faced significant challenge, weakened by lower global demand, a higher interest rate environment and ongoing inflationary pressure. In particular the pharmaceutical and manufacturing sectors saw slowdown in exports over the past 12 months. Ireland is one of seven EU economies expected to contract in 2023.

That said there are a number of early signs that 2024 will be a more positive year in terms of economic performance. The European Commission forecasts that Irelands GDP will grow by 3% in 2024 and 3.4% in 2025. The labour market remains tight while inflation continues to slow down (3.9% in November) fuelled by a drop in energy prices. The Central Bank and the Economic Social Research Institute are both forecasting that inflation will continue to fall next year. The Central Bank are forecasting inflation to fall to 2.3%, in line with the ECB’s target to reduce inflation to 2% over the medium term. Further it is widely expected that the ECB will cut interest rates over the next 12 months. The European Commission expects the Euro area as a whole to grow by 1.2% in 2024.

According to Atlantic Star’s annual report, Irish Special Purpose Vehicles (“SPV”) were up 4.3% in 2023, ending the year at approximately 4,183 vehicles. This growth was attributed across all three components of SPV’s in Ireland; structured finance, investment fund-linked vehicles and aircraft leasing vehicles. Atlantic Star preliminary data shows 431 newly incorporated SPVs during 2023, across at least 104 different sponsors. This year-on-year growth is projected to continue into 2024, proving once again that Ireland is the domicile of choice within international finance.

In addition to macroeconomic trends, there are a number of changes to Ireland’s corporate tax regime and other legislative and regulatory updates which companies operating in Ireland will need to remain informed on throughout 2024.

Corporate Tax Reform

The Finance Bill 2023 introduced significant changes to Ireland’s corporate tax regime, with the transposition of the EU’s Minimum Tax Directive and the OECD model rules and guidelines in line with the OECD Pillar Two agreement. Under the BEPS initiative the OECD has agreed rules designed to implement a global minimum effective tax rate of 15% for multinationals and domestic businesses with a global annual turnover of €750 million in two of the proceeding four years. The changes will come into force for accounting periods beginning on or after 31 December 2023, although there are a number of transaction and permanent safe harbour provisions included in the Bill to help ease the transition. Spanning over 120 pages in length, Pillar Two marks some of the most complex tax legislation introduced in Ireland in recent history and marks a major shift in Irish corporate tax policy. It’s worth noting however that the rules will not affect the majority of Irish entities and businesses who do not fall within scope of the legislation and will remain subject to the existing 12.5% regime.

Changes for the Financial Services Industry

Further to the implementation of Pillar Two, the Finance Bill also included a number of other amendments and changes of significant relevance to the financial services industry in Ireland. One such change is the amendment to the treatment of outbound payments of interest, royalties and distributions to associated entities in resident jurisdictions on the EU list of non-cooperative jurisdictions and non-tax/zero tax jurisdictions. The changes introduced will impact certain domestic withholding tax exemptions, for payments made on or after 1 April 2024, although there are a number of grandfathering provisions which extend the deadline for certain arrangements to 1 January 2025.

Another such change is the introduction of the concept of a ‘qualifying financing company’ and provisions which entitle qualifying financing companies meeting certain conditions to a tax deduction for interest paid in respect of financing where funds are on-lent to qualifying subsidiaries.

On 27 December 2023, The Minister for Finance, Michael McGrath signed the European Union (Credit Servicers and Credit Purchasers) Regulations 2023 to give effect to EU Directive 2021/2167 on Credit Servicers and Credit Purchasers. The Directive imposes an obligation on credit purchasers to appoint a credit services to perform credit servicing activities in respect of agreements concluded with certain types of debtors. Further there is a obligation on credit purchases to inform the national competent authority in case the purchaser transfers the credit agreement.

Increase in Reporting Obligations

2024 will see an increase in the reporting obligations of a wide range of companies operating in Ireland, in particular employers. The number of companies falling within scope of the Gender Pay Gap reporting obligations will significantly increase in 2024. First introduced in July 2021, the scope of the reporting requirements has been expanding on a staggered basis. All companies with 150 employees or more will be required to report in 2024. In 2025, the scope will expand again to include all employers with more than 50 employees. From 1 January 2024, employers across Ireland will be subject to additional reporting requirements with respect to certain expenses and benefits made to employees and directors. Further changes to share option reporting will also see an new obligation on employers to withhold Irish payroll taxes from gains arising on the exercise of share options.

Employee entitlements will also expand in 2024. The national minimum hourly wage will increase from the 1 January to €12.70. The Sick Leave Bill, a legacy of the Covid-19 pandemic, will see the number of minimum annual days of sick leave increases from three days to five in 2024.

On the Horizon

In addition to the above, there are a number of significant changes on the horizon which will likely be introduced over the year. The much-talked about pensions auto-enrolment scheme is due to be introduced in H2 2024. The deadline for member states to transpose the Corporate Sustainability Reporting Directive(“CSRD”) into national law is mid-2024, which will be the introduction of disclosure requirements on companies with respect to climate and environmental data.

Also on the radar is the Anti-Tax Avoidance Directive (ATAD 3), also known as the Unshell Directive. First published at the end of 2021, on 17 January 2023, the European Parliament approved a revised version of the draft legislation which aims to combat the misuse of shell entities across the EU member states. Under the proposed legislation, qualifying entities which do not meet minimum substance requirements would be subject to additional reporting obligations and a variety of tax penalties. The proposed penalties for non-compliance range from denial of tax treaty benefits to financial penalties of at least 2% of the entity’s annual revenue. It was originally intended that the Directive would be entered into force by January 2024 and that the automatic exchange of information on reporting entities would be operational by June 2024. The Unshell Directive has the potential to significantly impact a wide variety of entities including holding companies, certain section 110 vehicles, finding vehicles, leasing entities, and entities which are part of a multinational group.

 We are seeing promising signs of recovery in the Irish economy, after a period of tough market conditions. There are a large number of legislative and regulatory changes affecting companies operating in Ireland entering into force over the course of 2024. Teams will need to ensure they remain informed and ready to meet these new and/or updated obligations.

For further information on any of the topics discussed above or to discuss how Cafico International can assist your business please reach out to Niamh Manning.