Unleashing Ireland’s business potential

SMEs and start-ups are essential to the prosperity of communities throughout Ireland, supporting more than 1.2 million jobs nationwide. There are many large Irish headquartered multinational companies winning on the world stage. These “oak trees” started as acorns. We need more of them. But SMEs need help in an increasingly challenging business world.

Prompt, targeted tax reform for business owners and investors could contribute towards radically improving the prospects of the indigenous sector.

Not only could it open up access to more finance options for businesses, but it would also encourage founders to stay at the helm rather than selling too early.

Alan Bromell

Partner,

KPMG in Ireland

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Unlocking investment

Consider the finance challenge. The Employment Investment Incentive Scheme (EIIS) is intended to boost investment in Irish businesses by offering tax relief to investors in high-risk start-ups. In practice, however, the scheme is complex and does not match the commercial realities of SMEs.

Fixing the EIIS could prove a sea change in the nature and number of potential investors in Ireland. According to the Central Bank, €167 billion is held on deposit in Irish banks. Mobilising even a portion of these funds for productive investment should be a national priority, and a revised EIIS could go a long way to making it happen.

Simplifying EIIS eligibility and providing upfront Revenue confirmation to companies that submit accurate information (similar to the UK’s Enterprise Investment Scheme) would be an important first step.

The government could also extend relief to group subsidiaries; ease connected party rules and make capital gains tax (CGT) loss relief available under EIIS to further incentivise investment. This should not be controversial.

KPMG’s recent Enterprise Barometer survey found that just 35% of entrepreneurs feel the government truly supports enterprise as a catalyst for economic growth.

Furthermore, a recent government report has highlighted that Ireland lags behind the EU average in State support for enterprise, echoing the sentiments in the survey and emphasising the pressing need for enhancements in supports such as EIIS.

Rewarding scale over sale

Most business owners want to keep building. KPMG’s Enterprise Barometer survey found 83% of founders in Ireland want to lead enduring companies, rather than cash out or move on.

Founders and business owners are ambitious and motivated, but only 18% see Ireland’s tax environment as offering incentives to retain ownership

To really foster a vibrant indigenous sector, Ireland needs meaningful tax reform. Budget 2026 offered a step in the right direction by increasing the lifetime limit from €1m to €1.5m for the reduced 10% CGT rate for entrepreneurs. But this increase, although welcomed, does not meaningfully move the dial on this issue.

To compound this further, the reduced 10% rate only applies to capital events – this is another inhibitor.

On one hand, a founder can sell the business and pay CGT at 33%, or 10% if he or she qualifies for entrepreneur relief. Alternatively, the founder can try to scale their company but pay a marginal tax rate of over 55% on salary or dividends, once USC and PRSI are factored in. The rationale to cash out is therefore more compelling.

There’s no tax incentive for owners to reinvest and grow their business. Having invested personal savings and years of effort and taken significant risk, growth-focused founders find there’s little reward. They must endure a tax environment that penalises success.

And they look elsewhere in other jurisdictions and see a more attractive environment. Two options emerge – sell or move the business. And we see that more often that we would like.

So we need to level the playing field between income and capital events. A flat 20% income tax rate on dividends from trading SMEs and a 10% rate for those who qualify for entrepreneur relief would reward founders and remove the pressure to sell early.

The discriminatory 3% USC surcharge on founders and the self-employed should also be addressed.

Growth and innovation

Tax policy should appropriately reward innovation and risk-taking.

Alan Bromell

Partner

As it stands, both investors and founders face complexity and penalties that block both the risk-taking and the capital investment businesses need to scale.

To enable ambition, Ireland needs a cohesive, pragmatic and pro-growth tax system. Tax policy should appropriately reward innovation and risk-taking.

Finally, the concept of “static modelling” when costing tax expenditures needs fresh thinking. Currently, when assessing the cost of say, a tax rate reduction, this is costed by government by applying that rate reduction to projected income or gains. And this has prevented meaningful progress. It ignores the benefits to the Exchequer of founders continuing to grow their business from Ireland, ultimately leading to larger gains and income levels, and a greater return for the Exchequer. This is called dynamic modelling and is what we need to move towards.

Without reform, the indigenous sector will remain static. By being brave, we will encourage a dynamic environment in which Irish business, Government finances and society all stand to benefit.

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