Business tax

Following a number of public consultations via Feedback Statements, the Minister for Finance has announced the introduction of a participation exemption for foreign dividends. This aims to reduce the administrative burden on multinational businesses by simplifying Ireland’s double tax relief provisions and aligning Ireland’s regime more closely to international norms.

This exemption will apply to distributions received on or after 1 January 2025 from companies resident for tax purposes in the EU/EEA or jurisdictions with which Ireland has a double taxation agreement.

While the specific details are not yet available, current indications, based on the recent Feedback Statement, are that the dividend may only qualify if paid during/after an uninterrupted period of twelve months in which the receiving company controls at least 5% of the ordinary share capital of the payer.

Unfortunately, it is expected that this exemption will only apply to dividends paid out of “profits” in respect of non-redeemable shares  – this is inconsistent, for example, with the approach already adopted for dividends and distributions received from Irish resident companies, which are exempt from corporation tax. Helpfully, there is not expected to be a trading requirement associated with this exemption (unlike the current CGT participation exemption).

The minister confirmed that a company will have the option to either claim the participation exemption or continue to use the existing regime (i.e. the tax-and-credit relief under Schedule 24), by way of an election in the company’s corporation tax return. Where a company elects to claim the participation exemption for a financial period, it must do so for all dividends potentially in scope of the exemption in that period.

This is a welcome regime, which will significantly reduce the administrative burden on businesses. However, further improvements are necessary. The full details on the participation exemption will be set out in the Finance Bill and it is important that the exemption is not limited by reference to distributions paid from “profits”.

The minister also indicated that work would continue in the coming year on participation exemptions, and in particular, further consideration will be given to the geographic scope of the participation exemption on dividends (in the context of Pillar Two rules), as well as the possible introduction of an exemption for foreign branch profits. 

The minister announced that the Motor Insurers Insolvency Compensation (MIIC) Fund levy will be reduced from 1% to 0% for all motor insurance policies renewed from 1 January 2025. This reduction is expected to benefit up to 2.2 million policy holders and follows a reduction from 2% to 1% in Budget 2024. The levy was originally introduced to allow the MIIC Fund to meet shortfalls under Irish motor insurance policies where the motor insurance operator becomes insolvent.

In his Budget speech, the minister announced that the Department of Finance has commenced a review of the tax treatment of interest deductibility for businesses in Ireland. The review seeks to reduce complexity in Ireland’s tax law and maintain Ireland’s attractiveness for businesses. As a first step, the department launched a public consultation on 27 September 2024.

The consultation seeks stakeholders’ views in a number of areas, including:

• The taxation of interest
• The deduction of interest (in general)
• The interest limitation rule under the EU Anti-Tax Avoidance Directive, together with other anti-avoidance rules and restrictions relating to the deduction of interest
• The tax treatment of interest relating to financial services transactions
• Withholding taxes on interest and
• Reporting obligations for payers of interest

The consultation closes on 30 January 2025, and it is expected that the feedback from this consultation will inform future tax policy decisions.

Given the highly complex nature of the current rules, and the recent changes to Ireland’s corporation tax regime including the implementation of global minimum tax rules, the department has noted that the review will be carried out over a multi-year timeframe.

We have been calling for such a review for several years. It is critical that the cost of doing business in Ireland is minimised and that the administrative burden on businesses is low. The review of the interest deductibility rules is an important and necessary step in simplifying Ireland’s corporation tax regime. 

Company start-up relief provides for a reduction in a new company’s corporation tax liability for the first five years of trading. A company may be entitled to the relief if the corporation tax liability due in a tax year is €40,000 or less (with marginal relief available for companies with a corporation tax liability of between €40,001 and €60,000). The total tax relief available is the lower of €40,000 or the employer PRSI paid in the period, subject to a maximum PRSI payment of €5,000 per employee.

The minister has included a provision to allow up to €1,000 of Class S PRSI per individual to count towards this cap, thereby extending the relief to PRSI paid by owner directors. This will provide targeted support for small, owner-managed start-up companies.

To support Irish businesses to grow and scale, the minister signalled an intention to introduce a stamp duty exemption for Irish small and medium businesses in the coming year. This is intended to enhance access to funding via financial trading platforms and its introduction is subject to EU State Aid considerations. Further detail is awaited in the coming months / year. 

Following a period of significant change and improvement to the research and development tax credit (RDTC) brought about by developments in the international tax landscape, Budget 2025 provides for further enhancement to the RDTC regime.

Currently, companies with RDTC claims of €50,000 or less receive the full benefit of their RDTC claim in one upfront instalment in year 1. This approach is now to be extended to claims of €75,000 or less. This is a further extension of this threshold which increased from €25,000 to €50,000 in Budget 2024.

Companies with RDTC claims of between €75,000 and €150,000 will similarly benefit from a €25,000 increase in the first instalment of their RDTC claim. Companies with RDTC claims above €150,000 will continue to receive a first instalment amount based on 50% of the RDTC claim.

This is a positive update and will provide a vital cashflow benefit to companies engaged in smaller R&D projects or engaging with the credit for the first time.  

The Department of Finance has estimated based on 2022 RDTC claims (the latest data available), that increasing the payment threshold to €75,000 will increase, to circa 44%, the proportion of claimant companies qualifying for payment of the credit in full in the first year.

The minister also acknowledged that the Government must support innovative businesses “as they evolve to meet the challenges, and seize the opportunities, of an increasingly digitalised world”. A review of the RDTC regime will be carried out in the coming year by the department.  Such reviews have happened in the past, usually at a three-year interval. This review is welcome, and we hope it will result in the further broadening of the RDTC regime and provide opportunities for additional tax incentives for innovative businesses. 

There are a number of reliefs available for investments in corporate trades to attract investment from individuals. Individuals who make qualifying investments can claim income tax relief on the amount invested under three different incentives (subject to certain limits):

• Employment Investment Incentive (EII) which provides tax relief of up to 40% of the investment made in certain companies;
• Start-Up Relief for Entrepreneurs (SURE) which provides tax relief to entrepreneurs who leave an employment to set up their own company; and
• Start-Up Capital Investment (SCI) which is a tax relief for family members investing in early-stage micro companies founded by their relative(s).

The minister has announced that following a tax expenditure review it is proposed to extend the reliefs under EII, SURE and SCI for a further two years to 31 December 2026.

In addition, it is also proposed to increase the amount on which an investor can claim relief in respect of an EII investment to €1m (from €500,000) and to a maximum of €140,000 per year (€980,000 over 7 years) for SURE investments.