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New corporate tax regime for Northern Ireland will increase competition but is a good outcome

Tuesday, 13 January 2015   (0 Comments)
Posted by: Author: The Irish Times
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Author: The Irish Times

A dividend that benefits our island

The decision by the British government to offer Northern Ireland the chance to set its own corporation tax rate represents a clear dividend for the North following December’s Stormont House Agreement. The calculus for the North’s politicians is now clear – if they can deliver on promises made as part of the agreement to put the public finances on a firm footing, then they will gain a powerful new tool to attract investment.

The rate-setting powers would not come into effect until April 2017. But given the lengthy time horizon of major foreign direct investment projects, the impact of such a move would be immediate. The North would become a more attractive destination for foreign direct investment, even if the impact of this may be more gradual than the "transformative change” promised by Northern Ireland Secretary Theresa Villiers. This will increase the competition for IDA Ireland, although with an established base of companies it can maintain a strong position in the market. Nonetheless the North will be attractive for certain kinds of companies. As well as a corporation tax rate which will, presumably, fall from its current 21 per cent rate to match that in this State, it also offers lower wage costs.

The boost which the move could bring to the economic fortunes of the island as a whole is welcome. For the Government, the introduction of a lower rate in the North should also provide long-term support for its campaign to maintain the 12.5 per cent rate. That said, international pressure is focused more on the details of our tax arrangements than on the rate as such, and so further change is likely to be on the way.

For the North’s politicians, there is work to be done. The early passing of the corporation tax Bill is dependent on a workable budget emerging for 2015-16 and on promised welfare reform being delivered. The lower corporation tax rate will not solve all its economic problems, but it does offer once-off opportunity to reduce the North’s reliance on the public sector. It is not an opportunity which should be let slip.

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