When calculating Ireland taxable income, a business enterprise may deduct depreciation charges on fixed assets, where those fixed assets are used in its trade or business. Such assets include both tangible assets, such as immovable property, and plant and machinery, and intangible assets such as intellectual property rights. The deductibility generally requires the disallowance of accounting depreciation and substitution of tax deductible capital allowances. In certain cases accounting depreciation may be used for intellectual property.
Capital allowances are provided for eligible industrial buildings at a rate of 4% per year on a straight-line basis over a 25-year period. Eligible buildings include manufacturing facilities as well as hotels and certain other structures. The allowance is based on the cost of the structure less any grants received.
Annual capital allowances are available for capital expenditures incurred on plant and machinery at a rate of 12.5% per year on a straight line basis. As with immovable property, the allowance is generally based on the cost of the plant and machinery less any grants received. However, plant and machinery used in the production of processed foods for human consumption, can base the allowance on the gross cost.
Plant and Machinery which has been leased is generally not eligible for capital allowances. Note, however, that plant and machinery acquired under finance and operating leases can receive capital allowances in some cases. In addition, if the useful life of the asset under such leases is less than eight years, the lessor can use accounting depreciation instead of capital allowances.
Examples of eligible equipment includes the following:
- Motors and drives;
- Building Energy Management Systems (BEMS);
- Information and Communications Technology (ICT);
- Heating and Electrical Provision;
- HVAC Controls;
- Electric and Alternative Fuel Vehicles;
- Refrigeration and Cooling systems;
- Electro-mechanical Systems; and
- Catering and Hospitality Equipment.
Ireland allows for a tax deduction on expenditure incurred in the acquisition of qualifying intellectual property or the rights to use such property. Deductions are in the form of capital allowances based on accounting depreciation/amortization of the assets. However, an enterprise can choose to instead use a fixed write-down period of 15 years. If the fixed period is chosen, the allowance will be 7% of the cost of the assets in the first 14 years and 2% in the 15th year. Financing cost for the acquisition of IP assets is also generally deductible.
The allowance is available in respect of so-called “specified intangible assets”. These include:
- Registered designs
- Trademarks, brands, domain names
- Secret processes or formulae
- Plant breeder’s rights
- Goodwill insofar as related to “specified intangible assets”
Software rights which are acquired solely for end use by an enterprise can be written off in 8 years.
Goodwill related to specified intangible assets qualifies for the allowance only if it is regarded as an intangible under generally accepted accounting principles. Only externally acquired goodwill so qualifies and is, thus, eligible for the allowance. Internally developed goodwill is not eligible.
From 1 January 2015, the limitation is abolished that the capital allowance and related interest expenses for intangible assets may only offset up to 80% of connected profits. Prior to this change, the capital allowance deductions were used to offset up to 80% of the profits generated directly through exploitation of the IP assets, or profits from the sale of goods or services to which the IP assets contributed value. Unutilized IP deductions could be carried forward indefinitely and used to offset IP related profits in future periods, with an 80% limitation applicable in each period.
The allowance was recaptured if the specified intangible asset was disposed of within 10 years from acquisition. No claw back occurred if the disposal was made 10 years or more after acquisition, and the acquirer was not a related entity entitled to the same allowance.
Annual capital allowances are available for capital expenditures incurred on motor vehicles at a rate of 12.5% per year on a straight-line basis over an eight-year period, with a maximum qualifying expenditure of EUR 24,000 per vehicle. This restricted cost applies to both new and secondhand motor vehicles.
Since 1 July 2008, the capital allowance for expenditure on private cars used for business purposes is based on the emissions level of the car. Lower emissions cars can receive capital allowances based on EUR 24,000, regardless of the cost of the car, while higher emissions cars may receive capital allowances based on EUR 12,000 or less depending on the cost of the car, or no allowance at all.
The ACA is a tax incentive for companies paying corporation tax and aims to encourage investment in energy efficient equipment. The ACA offers an attractive incentive whereby it allows companies to write off 100% of the purchase value of qualifying energy efficient equipment against their profit in the first year of use (this is set to expire 31 December 2017). The ACA, as detailed in the Finance Act, covers 10 different equipment categories and includes 52 technologies.
The asset types eligible for the 100% allowance include:
- Building energy management systems
- Catering and hospitality equipment
- Electric and alternative fuel vehicles
- Electro-mechanical systems
- Heating and electricity provision
- Heating, ventilation, and air conditioning control systems
- Information and communications technology
- Motors and drives
- Refrigeration and cooling systems
A list of the items that qualify are found at www.seai.ie.