Tax-Free Status for Offshore Islands – Údarás na Gaeltachta radical plan to boost island industry and populations

6 July, 2008

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Údarás na Gaeltachta, the regional authority responsible for the economic, social and cultural development of the Gaeltacht, has proposed a radical plan to the Commission on Taxation recommending a special taxation incentive scheme for offshore islands.

The proposals are based on the desire to promote economic activity on the off- shore islands of Ireland and thereby attract individuals to reside there. The Údarás proposed scheme includes a pilot scheme that would give an exemption from income tax to individuals who reside on the islands i.e. whose principal private residence is located on the Islands and who either a) earns income from employment on the islands or the mainland or b) who carries on a business mainly on the islands. The suggested tax-exempt threshold would be in respect of a maximum annual income of €100,000 and the exemption would apply for a period of ten tax years. The exemption would apply to both new and existing businesses on the islands.

Údarás has also proposed having a 100% capital allowances/free depreciation write-off for any equipment or buildings provided for use in a business allowable against non-exempt income and a BES type tax relief to apply to investors who invest capital in any business located on the islands. They also propose a VAT refund scheme to be implemented for community based activities that require capital expenditure on buildings and fit-out can be refunded the VAT incurred on their establishment costs.

Commenting on the proposal, Pádraig Ó hAoláin, CEO of Údarás na Gaeltachta, said, “Údarás made this submission for special taxation incentives for the offshore islands to help promote their development, help maintain their populations and to generate sustainable employment by making them a more attractive live-work option for islanders.

“While the infrastructure of our offshore islands has been substantially upgraded in recent years – and substantial state investment is currently being made in this sector – and while access via air and ferry services has been greatly improved, the overall population of the offshore islands continues to decline. As far as our function of enterprise promotion is concerned, the most challenging task for us is to create new employment and income – enhancement opportunities for island residents and especially for young islanders and islanders wishing to return to reside on the islands. We feel this is what holds the key to the future viability of the island communities.”

Mr. Ó hAoláin added, “As has been very recently highlighted the fishing industry, which was traditionally a major employer and source of income, has been in decline for quite a number of years, and while tourism is a major source of employment and income for many people on the larger islands, a radical approach is required if the island communities are to be sustained into the future and provided with a platform for organic growth.

“A particular point to note is that the largest Irish offshore island has a population under 900 people and the total offshore islands’ population is under 3,000 persons. This proposal is aimed at all islands, both within and without the Gaeltacht regions. It has a relatively modest overall potential cost to the exchequer but we believe could have the effect of giving a major boost to achieving a major objective of successive governments since the foundation of the state i.e. promoting the sustainable development of our offshore islands.”