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Ireland's COVID-19 Stimulus Plan Reduces VAT Rate

Posted on July 24, 2020

The Irish government has announced it will reduce the standard VAT rate from 23 percent to 21 percent for six months under a stimulus plan that includes €1 billion in tax measures to support businesses.

According to the government's July 23 stimulus plan, the cost of the temporary rate reduction will be €440 million. The reduced VAT rate will be effective from September 1.

To support the hospitality and tourism sector during the pandemic, the government said it will introduce a “Stay and Spend Incentive.” According to the stimulus plan, any taxpayer who spends over €625 on accommodation, food, and non-alcoholic drinks between October 2020 and April 2021 will be able to claim a tax credit of up to €125.

The government also said it will pass legislation regarding the “warehousing” of VAT and payroll tax debts, which was announced May 2. Finance Minister Paschal Donohoe said that interest will not accrue on businesses' COVID-19-related tax debts, and there will be no debt actions for 12 months after business activities recommence. The stimulus plan also confirms that a 3 percent interest rate will apply for tax debt repayment agreements made before September 30.

To provide companies with liquidity, the government said it will allow the early carryback of trading losses, which will result in immediate refunds of corporation tax paid.

The stimulus plan also includes income tax relief for self-employed individuals who may have been profitable in 2019 but experienced losses for the 2020 tax year because of the pandemic.

The government also said that it will implement a new employment wage support scheme that will replace the temporary wage subsidy scheme and be effective until April 2021. As originally announced March 24, the maximum subsidy for employees with earnings of over €586 per week will be €350 a week. However, a tiered approach will apply, with payments based on the gross amount paid by the employer. The temporary wage subsidy scheme took effect March 26 and was expected to last approximately 12 weeks. It was updated April 15, and in June it was extended to August 31.

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