Levelling the playing field

The message that Ireland needs to broaden its corporate taxpayer base is well signposted by the Irish Fiscal Advisory Council, the Central Bank, and the Department of Finance’s Future Forty report.

While maintaining strong levels of FDI remains crucial for our economy, it is equally important now to support the growth of our domestic business sector, which faces increasing challenges including when it comes to managing rising labour costs and competing for talent.

To attract and retain skilled workers, domestic employers need action on measures such as extending tax reliefs like Special Assignee Relief Programme (SARP) and reforming the Key Employee Engagement Programme (KEEP) share scheme. A balanced approach to payroll regulations is also essential to curb unsustainable employer costs.

Olivia Lynch

Partner, Tax

KPMG in Ireland

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Rising labour costs

Labour costs have become the top concern for employers, with three quarters of over 100 key decision-makers surveyed for KPMG’s new Enterprise Barometer citing this as their primary worry.

Pension auto-enrolment now obliges employers to pay 1.5% of gross salary, rising to 6% by 2035. The minimum wage is now €14.15, and employer PRSI recently increased by 0.1%, with more increases planned later this year and next.

Tax administration has also become more complex and burdensome for businesses. Real-time reporting requires employers to report details of non-taxable benefits and expenses, such as Christmas vouchers and travel expenses, when provided to employees, creating administrative and timing challenges for SMEs, especially for ad-hoc benefits.

All these measures are driving up costs at a time when wage inflation here has surpassed that of the US and the Euro area, with average weekly earnings rising by 4.9% year-on-year according to CSO figures for Q3 2025.

As critical as it is to protect employees and provide fair pay, especially following the steep inflation of recent years, the Government needs to be very conscious of the need for a balanced approach to new regulation to give SMEs breathing space to manage ballooning payroll costs.

Competition for skilled labour

Domestic employers are also finding it increasingly difficult to attract and retain skilled workers, especially when competing with larger companies.

Over half (55%) of surveyed employers identified recruitment and retention as a major challenge, while 49% pointed directly to competition from large businesses and multinationals. This challenge is even more acute outside Dublin, where regional infrastructure deficits make it harder to draw top talent.

Large companies can have a distinct advantage: they can offer attractive, tax-efficient share participation schemes often with greater liquidity, thanks to established markets and more flexible structures.

A well-designed, tax-efficient share participation scheme for SMEs and start-ups could significantly reduce reliance on cash pay and help manage rising payroll costs, while also boosting employee engagement in local firms.

While Ireland has operated a tax-efficient share scheme called KEEP since 2018, which defers tax on share options until the shares are sold, the scheme’s restrictive eligibility criteria and misalignment with common SME structures have severely limited its adoption. KEEP was initially budgeted to cost €10 million per year.

However, the actual cost to the Exchequer is only a fraction of that, with claims totalling just €4 million over five years. According to current government data, only 35 companies used KEEP in 2023, benefiting fewer than 10 employees, underscoring the urgent need for reform to make the scheme accessible and impactful.

Simplifying the valuation process and broadening eligibility, particularly for common SME structures, are essential reforms needed to make KEEP accessible and effective for more businesses.

Unlock other reliefs for SMEs

There are other examples of how tax reliefs could be extended to help SMEs attract skilled worker such as SARP.

Introduced in 2012, SARP offers income tax relief on salaries above €100,000 to help employers reduce costs when assigning skilled staff from abroad to roles within their Irish operations.

Currently, SARP remains out of reach for many SMEs, primarily because it excludes new hires and is limited to assignees with prior employment in another jurisdiction by the same employer or a related entity, a restriction unique within the EU.

This places SMEs, who typically lack international networks for sourcing talent, at a significant disadvantage compared to large companies with cross border operations. Reforming the SARP regime to include new hires would enable SMEs attract and retain the talent necessary to scale and grow.

Reform as a path forward

Talent is fundamental to business success so Government policy should be laser focused on helping SMEs manage labour costs and compete on an equal footing for talent.

Olivia Lynch

Partner, Tax

Business growth is driven by a range of factors: innovation, ambition, hard work, prudent financial management, and supportive State policies. Yet, without the right people, even the best-laid plans can falter.

Talent is fundamental to business success so Government policy should be laser focused on helping SMEs manage labour costs and compete on an equal footing for talent.

Pacing the timing of regulatory change would give SMEs breathing space needed to adapt and manage rising labour costs. Implementing practical measures such as moving real-time reporting of benefits and expenses to a monthly requirement would bring some respite to employers.

An accessible share participation scheme along with access to SARP would also help domestic businesses compete for skilled workers on a level playing field with large corporates.

Such reforms are essential not only for the survival of individual businesses but for ensuring that Ireland’s economy remains diverse, innovative, and resilient in the face of future challenges.

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