Business must prepare to take centre stage
The journey to securing the 12.5% corporation tax rate for NI began in early 2010, when a comprehensive economic review was produced by the Northern Ireland Economic Reform Group. After months of political impasse and delays due to political factors, the governing political parties in Northern Ireland have finally endorsed the 'Fresh Start' agreement, giving a renewed impetus to the devolution of corporation tax rate-setting powers here.
The legislation introducing the reduced rate came into force in March 2015, and remains contingent on the Northern Ireland Executive committing to a sustainable budget and implementing the rest of the Fresh Start agreement.
Corporation tax will be reduced to 12.5% with effect from April 1 2018 for companies carrying out genuine economic (trading) activity in Northern Ireland.
This will level the playing field between Northern Ireland and the Republic of Ireland, where the corporation tax rate is currently 12.5% for trading profits. It also creates a competitive advantage when compared to the rest of the UK, where the corporation tax rate is currently 20% (reducing to 18% from April 2020).
This presents a significant and exciting opportunity to attract new investment to the region, but it is essential that steps are taken now to maximise the potential benefits in 2018.
What will a reduction mean for Northern Ireland?
Companies already trading in Northern Ireland should see immediate benefits from the 12.5% rate once it comes into effect. The 12.5% rate will provide a much needed stimulus to the local manufacturing sector, and other industries such as science and technology should also benefit.
It should be noted that certain trades are specifically excluded from qualifying for the 12.5% rate, such as financial services and most back-office functions. It is also estimated that 37,500 jobs will be created across a range of sectors by 2033.
It is hoped that this development will produce a similar outcome for the Northern Ireland economy as in the Republic over the last decade, as it facilitates increased competition for FDI. Experience in the Republic has shown that there is a wider benefit to FDI besides the creation of jobs.
For example, many Irish entrepreneurs have started their own businesses after benefiting from the experience offered by FDI. In a similar vein, it is hoped that the introduction of the 12.5% rate in Northern Ireland will ultimately help create to create a new generation of local entrepreneurs.
Preparation is key to capitalising on this opportunity
The reduced corporation tax rate alone will not be sufficient to attract the level of investment required to make it a success. To attract substantial FDI, political leaders, business leaders and professional advisers must present a united front and develop a clear strategy to demonstrate that Northern Ireland is open for business.
EY European Investment Monitor 2015 recently found that the top three factors influencing regional attractiveness are: transport infrastructure, availability and skills of local workforce and the availability of business partners and suppliers.
The government must now prioritise meeting these demands to narrow the gap in the race for FDI.
Furthermore, with the 12.5% rate just over two years away, now is the time to invest strategically, thinking laterally about how we can make the reduced rate a success.
This means focusing investment on the right sectors and geographic regions - those that can deliver the most value to Northern Ireland in the coming years.
We must consider not only what appeals to foreign investors, but also what is right for home-grown business.
Local success stories in Northern Ireland in the life sciences and technology sectors can provide government and policy makers with valuable insight when making these difficult investment choices.
In this way, we can also create opportunities for indigenous business to grow and prosper in line with the wider economy.
When April 2018 comes around NI will finally have its moment in the spotlight before domestic and international investors. We must make sure we are adequately prepared to take centre stage.
- Michael Hall is managing partner of EY Northern Ireland