Personal Taxes

Private tax breaks utilized by EU rivals to draw the very best earners

EU countries are increasingly creating personal tax breaks to attract wealthy foreigners, a study has found, while existing Irish tax breaks are rarely used.

The Paris-based EU Tax Observatory says Italy, Greece, Cyprus and Portugal have some of the most generous income tax systems for wealthy individuals or retirees, giving them tens of thousands of euros annually. However, many are not widely used.

The report also mentions an Irish remittance system that allows non-resident tax residents to exempt certain foreign income from tax.

In terms of monetary gains, it took fourth place in the EU rankings and offers the average user a depreciation of around € 30,000 per year, although it was only used by 8,500 people in 2017.

A Dutch tax-free allowance of 30 percent on the gross salaries of highly skilled foreign workers was used by more than 90,000 people in the past year. A Belgian aid organization for foreign executives had more than 24,000 users this year.

Another Irish program, the Special Assignee Relief Program (SARP) a partial exemption for foreign workers posted to Ireland by their companies is also mentioned in the report, but was only used by 1,500 people in 2018.

A recent task force from the Ministry of SMEs called for the program to be extended to SMEs.

Given the pandemic allowing people to work remotely and a recent global corporate tax treaty that places more emphasis on substance than tax residency, there is an argument in favor of updating Ireland’s personal tax system, experts say.

“Other aspects of countries’ tax systems will become increasingly important in attracting investment,” said Brian Daly, partner at consultancy KPMG Ireland.

“In competition with other countries that are increasingly focusing on the attractiveness of their personal tax systems, Ireland needs to have an attractive personal tax and welfare system in place so that we can win and keep them here.”

He says that employers’ PRSI is charged at 100 percent of income, while in other countries like Germany and Spain it is capped at a lower level.

“We need to see if this regime continues to allow us to attract and retain mobile talent who are such a significant contributor to the Irish economy,” he said.

However, the EU Tax Observatory has warned that preferential personal tax systems are harmful, as many of the taxpayers do not work in the country and cost the EU treasury up to 4.5 billion euros annually.

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