Business owners believe Irish tax code ‘is barrier’ to growth

Survey respondents cite high marginal rates and lack of staff reward schemes as negatives

High marginal tax rates in particular were highlighted by respondents as having a strong bearing on decisions over whether to set up in Ireland or not. Photograph: Getty Images

High marginal tax rates in particular were highlighted by respondents as having a strong bearing on decisions over whether to set up in Ireland or not. Photograph: Getty Images

 

More than half of Irish business owners view the State’s tax code as a barrier to growth rather than a support, according to a survey by accounting and professional services firm Deloitte.

Respondents cited Ireland’s high marginal income tax rates, the lack of tax efficient reward schemes for staff and the high level of capital gains tax (CGT) levelled on owners exiting their businesses as hindrances to attracting and retaining key talent.

High marginal tax rates in particular were highlighted as having a strong bearing on decisions over whether to set up in Ireland or not, while more than 75 per cent of respondents suggested these rates had influenced previous decisions on whether to take a dividend or salary remuneration.

“It is important that tax policy strikes a balance between encouraging entrepreneurs to retain cash within the business to provide for growth and scaling, whilst rewarding successful entrepreneurs who have emerged from the challenging start-up period and who are driving employment growth,” David Shanahan, Deloitte tax partner, said.

Gripe

Respondents suggested a significant barrier to growing and scaling the business was also the lack of tax efficient reward mechanisms for employees, a longstanding gripe of the business community here.

Although the Government has signalled the introduction of a share-based incentive for SMEs, there is currently nothing equivalent to those offered in the UK.

“The retention of employees is of paramount importance to an entrepreneur where the business is scaling and where competition with larger corporates can make it difficult to keep key personnel,” the Deloitte report said.

The relatively high CGT rate on entrepreneurs exiting the business was also cited as a negative.

Respondents suggested the current tax system did not adequately reward the risk borne by individuals who build and subsequently exit successful enterprises. An overwhelming 97 per cent felt that bringing the Irish relief in line with the UK would have a positive impact in Ireland.

“Perhaps of greater concern, however, is that over 89 per cent of respondents stated that the relative attractiveness of the UK entrepreneur relief would make Irish entrepreneurs more likely to consider setting up and basing their operations in the UK,” Mr Shanahan said.

This willingness to relocate was significant in light of Brexit, he said. “Entrepreneurs were clear that in a tax context alone, leaving aside other commercial factors, they would consider setting up and basing their operations in the UK as the UK has a more competitive tax environment for entrepreneurs,” he added.