Finance Bill 2025 contained a limited number of measures to help mitigate the rising costs of employment in Ireland and the ability for employers to compete globally. While the extension of the Special Assignee Relief Programme is positive, further enhancements to the relief would help to ensure Ireland can continue to compete for talent at a global level.
The Key Employee Engagement Programme (“KEEP”) provides for tax advantageous share options for employees and directors of certain qualifying SMEs. KEEP is intended to support SMEs in attracting and retaining key talent in a highly competitive labour market.
The Bill provides for the extension of KEEP, subject to State Aid approval, to 31 December 2028 which is a positive development. However, the Bill does not introduce any changes to the qualifying requirements, which currently pose significant challenges for businesses in terms of understanding how they and their employees can qualify for KEEP.
This complexity has resulted in a low uptake of KEEP since it was introduced and therefore further refinements to the qualifying requirements will be necessary to enhance the attractiveness of the scheme and increase uptake in future years.
Introduced in 2012, the Foreign Earnings Deduction (“FED”) was designed to assist Irish indigenous businesses to expand internationally, in particular into emerging markets. FED operates by allowing a deduction for income tax purposes calculated by reference to the qualifying days which an employee spends working in specific jurisdictions.
The Bill confirms that FED, which was due to expire in 2025, will be extended for a further 5 years which is positive. In addition, from 1 January 2026:
The definition of a qualifying day has been amended such that an individual is no longer required to spend three consecutive days working in a relevant state for the day to qualify. This is a welcome change as the requirement to be present in a relevant state for three consecutive days has, in our experience, limited the relief available to some employees.
Ireland continues to have one of the most progressive income tax systems across the OECD. However, the entry point to the higher 40% income tax band remains below the average wage - this damages our competitiveness by limiting employers’ ability to attract skilled professionals to Ireland, and discourages individuals from upskilling and pursuing higher-paying jobs.
Feedback published following the Department of Finance’s recent review of the Special Assignee Relief Programme (“SARP”) found that it has led to the creation of additional jobs in Ireland and has had a positive impact on employee retention rates, consistent with its policy objectives. Further the review notes that by facilitating wider investment in Ireland, SARP has positively contributed to the Irish economy.
The Bill confirms the extension of SARP to 31 December 2030 as announced in Minister Donohoe’s Budget 2026 speech. This extension is very welcome.
Positively the Bill introduces some improvements to certain onerous administrative requirements associated with SARP (set out below), but unfortunately it also confirms an increase in the minimum basic annual salary for the relief from €100,000 to €125,000. This is very disappointing and will have a negative impact on the number of employees who will be eligible for SARP.
As the minimum basic salary requirement disregards incentive payments such as bonuses, commission and share-based remuneration employees with heavily weighted variable remuneration packages may not meet the minimum requirements and therefore will not qualify for SARP.
Relaxation of certain administrative measures provided for in the Bill:
While the Bill has brought some positive updates, there continues to be a number of aspects of the relief which limit its effectiveness. For example, the relief is currently not available to new hires and therefore is largely unavailable to indigenous businesses. We had hoped to see more done on this in Finance Bill 2025.
The Bill introduced the following changes to the calculation of the Benefit-in-Kind (BIK) due in respect of certain company provided vehicles:
A new category for vehicles with zero CO2 emissions will be introduced from 1 January 2026. A reduced BIK rate of between 6% and 15% will apply, depending on business milage, to vehicles falling within the new A1 category. Category A will be amended to reflect the introduction of the new zero emissions category and will now apply to cars with CO2 emissions above 0g/km but not exceeding 59g/km.
The temporary universal reduction in the OMV of cars in categories A1 to D, as well as vans (including electric vans), which lowers the amount of BIK payable, is being extended for three more years to 31 December 2028 on a tapered basis.
This relief will remain at €10,000 for 2026, then reduce to €5,000 in 2027 and €2,500 in 2028. The current expectation is that the relief will be abolished in 2029.
Additionally, the lower limit in the highest mileage band is being permanently reduced from 52,001km to 48,001km from 1 January 2026.
The measures unveiled in Finance Bill 2025 will have far-reaching implications for businesses across Ireland. If you have any enquiries, comments, or wish to explore further, we are here to assist.
Contact Olive O'Donoghue of our Tax team today.
