As we've discussed in previous blogs, Ireland is a great place to both set up and invest in businesses, and Entrepreneur Relief, which has been in place in various forms since its introduction in Finance Act 2013, aims to enhance that, ensuring investors aren't faced with a big capital gains tax bill when they divest of a stake in a company.
Entrepreneur Relief: An Outline
Entrepreneur Relief provides for a reduced capital gains tax rate of 10% (down from the standard 33% CGT rate) for chargeable gains arising on disposals of qualifying business assets, subject to a lifetime cap of EUR1m in chargeable gains.
The regime is aimed at encouraging those connected to companies, whether as a director or employee, to hold a stake in the company's success through a monetary investment.
Ireland recently improved the regime to provide greater latitude for taxpayers to qualify for the reduced rate of tax.
Qualifying for the relief
Previously, in order to qualify for the reduced tax rate, an investor was required to have held "qualifying business assets" for three years on a continuous basis immediately prior to divesting their holding. Now, a taxpayer needs only have held the assets for a continuous period of three years at some point in the five years prior.
There are other conditions, including that the taxpayer must have owned at least 5% of the ordinary share capital of the company. This requirement has also been eased. Now, an investor need only have satisfied this requirement for three continuous years at any point in the past, rather than in the past five years.
Where shares are being disposed of, the vendor must have spent not less than 50% of his or her time in the service of the company in a managerial or technical capacity. The individual must have served in that capacity for a continuous period of 3 years in the 5 years immediately prior to the disposal of the shares.
Eligible investments
For the purposes of the relief, "qualifying business assets" fall into two categories:
"shares held by an individual in a trading company", or
"[assets] owned by a sole trader and used in their trade".
Although the relief is broadly available, there are a number of investments that don't qualify. These are:
- shares, securities, or other assets held as investments;
- development of land;
- assets that when sold would not be liable to capital gains tax;
- assets personally owned outside a company, even where such assets are used by the company;
- goodwill that is disposed of to a connected company; and
- shares or securities in a company where the individual remains connected with the company following the disposal.
The improved relief is available for disposals made since the beginning of this year. The introduction of the new, more flexible rules in this area is a beneficial development for entrepreneurs, as a much-welcomed addition to a valuable support scheme.
WANT TO ESTABLISH YOUR BUSINESS IN IRELAND?
SMART MBS has the expertise to provide you with a range of services to support setting up your business or expanding into Ireland. We can tailor a cost efficient package based on any outsourced services that your business requires. To find out more, please download our Ebook here.
