The participation exemption on foreign distributions was first introduced last year in Finance Act 2024. Finance Bill 2025 proposes modest improvements to, and technical amendments of, the participation exemption regime.
The main changes proposed in the Bill are as follows:
Territorial expansion from distributions of entities resident in a ‘relevant territory’ (i.e. EEA, Treaty or Treaty-pending territories) to now also include distributions from entities resident in a territory in which foreign tax is charged and paid directly on the distribution made by that entity at a rate greater than 0%. That tax must not be repaid to any person. This new category of territory is referred to as a ‘specified territory’.
Shortening of the “lookback period” during which a foreign relevant subsidiary must not have acquired a “business” or “assets used for the purposes of another business” from non-relevant territory resident companies. The lookback period for any such excluded acquisition has been shortened from five years to three years, with effect from 1 January 2026.
Clarification that an “excluded acquisition” does not include the acquisition of share capital when considering acquisitions made by the foreign relevant subsidiary during the “lookback period”. Nor do acquisitions from a company resident in Ireland need to be considered. In addition, to the extent a company was resident in Ireland prior to becoming resident in a relevant territory, that period of residence in Ireland is allowable for “lookback period” purposes. These clarifications have retrospective effect to distributions made from 1 January 2025.
Technical amendments include one which deems new or pending Treaty territories to be a ‘relevant territory’ from the date that is three years prior to the date of the treaty arrangements having been entered into. A further technical amendment was made to cater for Treaty territories where the concept of tax residence is not relevant under the domestic law in that territory. This amendment confirms that the treaty residence is sufficient for the purpose of satisfying the “resident for the purposes of foreign tax” test.
Overall, the proposed changes represent a modest expansion of the territorial scope of the regime and a moderate relaxation of the restrictions imposed by the lookback period. The changes represent an improvement on the status quo, which should allow some companies to be more assured that they can now satisfy the qualifying criteria. However, there remains significant scope to improve the regime for it to meet the stated policy objective of being a broad, simple and straightforward regime to operate.
Research and development tax credit
The Bill delivers meaningful improvements to Ireland’s R&D regime, with the headline credit rate rising from 30% to 35% for accounting periods ending on or after 23 December 2026 and the first‑year minimum payment threshold increasing from €75,000 to €87,500, providing a welcome boost for smaller claims.
The Bill also introduces a targeted simplification measure for claiming labour costs for employees that spent a high proportion of their time on qualifying R&D activities. The rules permit companies to treat 100% of an employee’s salary and emoluments as qualifying where the employee spends at least 95% of their time on eligible R&D activities. This change helps simplify the position where employees are dedicated to R&D activities with an immaterial amount of time spent on administrative and non-R&D tasks. Similar principles are adopted in R&D tax credit regimes in some other jurisdictions.
The Bill includes a provision to extend the R&D tax credit available on the construction of a building or structure that might not otherwise meet the conditions to be eligible for the credit. This may include the construction of a laboratory that does not qualify for industrial buildings allowances where it is not embedded in a manufacturing environment. The extended provision does not include expenditure incurred on any part of the laboratory for use as an office or for any purpose ancillary to the purpose of an office. As a result, it is likely that this will only apply to the specialised area of a laboratory.
Separate to the Bill enhancements, a forthcoming R&D Compass publication is expected to further enhance aspects of the R&D regime to align with industry practice. It is also hoped that this compass will set the pathway for the development of broader innovation supports. This compass has not been released as part of the Finance Bill publications, but is expected in the coming weeks.
Stamp duty market capitalisation exemption
The Bill introduces a new exemption for transfers of shares in Irish companies that are admitted to trade on regulated markets, multilateral trading facilities (MFTs) or non-EU markets that are equivalent to regulated markets or MFTs where the market capitalisation of the company is less than €1 billion.
The market capitalisation of the company for a calendar year is based on its closing market capitalisation on 1 December in the preceding year. For the exemption to apply to a company’s shares for a particular year, the company or the operator of the relevant market, or both, must notify the Revenue Commissioners of the company’s sub-€1 billion market capitalisation. The exemption will then apply from 1 January of the particular year, or 14 days after the notification date, whichever is later.
In conjunction with the introduction of this exemption, the existing exemption for shares admitted to trading on Euronext Growth is to be abolished.
These changes will take effect from 1 January 2026.
Pillar Two
The Bill gives effect to DAC 9, the EU’s directive extending cooperation and information exchange in respect of minimum effective corporate taxation. In practice, DAC 9 establishes a mandatory, standardised Top-Up Tax Information Return (TIR) — the EU equivalent of the OECD’s GloBE Information Return — to be filed in one EU Member State, as opposed to multiple filings across different EU countries. It also introduces a system where TIRs will automatically be exchanged among tax authorities within the EU.
The Bill also legislates for the OECD Administrative Guidance, released in January 2025. Groups should review the January 2025 updates to identify any changes that may impact their Pillar Two position.
Finally, the Bill recognises the OECD Multilateral Competent Authority Agreement (MCAA), which provides for the automatic exchange of information with respect to the filing of top-up tax information returns between Pillar Two-implementing jurisdictions around the world, which Ireland signed in August 2025.
A number of technical amendments were also made to ensure that the Pillar Two legislation operates as intended.
Group payments
Currently, payments can be made between group companies without the deduction of tax provided certain conditions are met. One condition is that the companies must be part of a group with at least 51% ownership. Currently, when determining whether such a group exists, any share capital held, directly or indirectly, in a company not resident in a relevant Member State/EEA State, or in the UK is disregarded.
The Bill expands this rule to also include share capital held, directly or indirectly, in a company that is tax resident in any country with which Ireland has a double tax treaty, meaning such shareholdings will no longer be disregarded when assessing group membership.
Interest deduction on loans from connected companies
The anti-avoidance provision contained in Section 840A has been amended to allow an interest deduction on connected party borrowings used to purchase assets from a connected company subject to certain conditions. The intra-group sale must be carried out for bona fide commercial purposes, and the seller must have been entitled to a deduction for interest payable on a loan used to acquire the relevant asset immediately prior to the intra-group sale. The Bill allows for an interest deduction for the acquirer of the asset up to the amount of the interest arising on the principal outstanding on the relevant borrowings of the seller prior to the intra-group sale.
Intellectual property capital allowances
Section 291A provides for capital allowances for companies that incur capital expenditure on the provision of certain intangible assets for the purpose of a trade. The allowances are ring-fenced for offset against trading income generated by those assets. The deduction is capped at a maximum of 80% of relevant trading profits each year, but any unused allowances can be carried forward to future accounting periods.
The Bill provides for amendments to how balancing allowances, which arise on certain events such as the disposal or transfer of the asset, can be used. The Bill clarifies that the 80% cap will also apply to any balancing allowances arising under Section 288. The amendment applies to any event that triggers a balancing allowance and which occurs on or after 8 October 2025.
The following clarifications will take effect from 1 January 2026:
The “excess amount” of allowances, which are unallowed due to the imposition of the ring-fencing provisions and 80% cap, are regarded as having been made in the first accounting period that they were subject to the restriction.
Capital allowances will be available for the transferee under Section 284 in respect of the acquisition of a specified intangible asset where reliefs in respect of a group reconstruction or intra-group transfer under Section 615 or Section 617 apply, and the acquisition occurs on the transfer of a trade under Section 400.
In cases where a company transferring a trade under Section 400 has excess Section 291A allowances or excess interest brought forward, these may also be transferred to the successor company, provided all necessary conditions are satisfied.
Visual effects and digital games
Film Tax Credit
The Bill enhances Ireland’s Section 481 Film Tax Credit regime to allow for a specific Visual Effect (VFX) measure. Productions with a minimum of €1 million in eligible expenditure on relevant visual works in the state will now benefit from an enhanced Section 481 tax credit of 40%. The 40% rate will apply to eligible expenditure up to a maximum of €10 million per visual effects project.
Eligible expenditure in excess of €10 million will qualify for the Section 481 tax credit at the standard rate of 32%. As this enhancement will form part of the existing Section 481 Film Tax Credit, it will also be subject to the existing sunset clause of 31 December 2028.
The introduction of the credit is subject to a commencement order.
Digital Games Tax Credit
The Digital Games Tax Credit, first introduced in Finance Act 2021, is being extended by six years to 31 December 2031. The credit is also being enhanced to allow for claims in respect of post-release content work, subject to certain conditions. The extension is subject to a ministerial commencement order.
The extension of the credit to include post-release content work will only be available where the original game has availed of the credit. The game must have been released to the public in advance of any claim for post-release content, and the credit will be available in respect of qualifying expenditure for a maximum of three years post-release.
The Bill provides for a change to the definition of qualifying expenditure to clarify that, for corporation tax purposes, the expenditure must be allowable as a deduction in computing, or against, the income of the trade of developing digital games.
A number of technical amendments were also made to ensure that the section operates as intended. The amendments are subject to a commencement order.
Country-by-Country Reporting
Section 891H, which relates to Country-by-Country Reporting (CbCR), has been amended to provide additional clarifications in relation to the application of the rules. Among others, the updates clarify that CbCR reports must also be prepared in accordance with OECD CbCR implementation guidance, which was published in May 2024.
As a further helpful clarification, the Bill has legislated for specific circumstances where the OECD guidance provides flexibility to jurisdictions for the purpose of applying the €750 million threshold for determining whether a group is within the scope of the CbCR requirements.
Miscellaneous
There were a number of other measures introduced in the Bill as outlined below:
The Accelerated Capital Allowances scheme for certain energy efficient equipment, gas and hydrogen vehicles and refuelling equipment has been extended for a further period of five years until 31 December 2030.
The introduction of an enhanced corporation tax deduction in respect of certain construction costs on apartments.
The definition of a “large scale asset” for the purpose of the interest limitation rules has been updated for relevant references to the Planning and Development Act 2014.
A new exemption from corporation tax in respect of rental income arising from properties in the Cost Rental Scheme.
A reduction of the VAT rate from 13.5% to 9% on the sale of completed apartments.
The Stamp Duty Residential Development Scheme has been extended and enhanced.
The following important announcements were also made by the Minister in his Budget speech.
- Interest regime consultation: On 7 October 2025, the Government published an action plan for the reform of Ireland’s taxation regime for interest. The first phase of the new action plan will focus on the underlying framework for the taxation and deductibility of interest in Ireland, with publication of a feedback statement for consultation expected on 21 November 2025, followed by an outline of draft legislation in April 2026. While this will be a welcome development for many large corporates operating in Ireland, concrete reform is needed immediately to simplify Ireland’s taxation regime for interest to ensure it is aligned with international best practice.
- Consultation on withholding tax: It was announced on Budget Day that a joint Department of Finance and Revenue public consultation will be launched soon in relation to withholding taxes. We look forward to this consultation.
- E-invoicing: It was also announced on Budget Day that Revenue will begin a three-phase rollout of domestic electronic invoicing arrangements for business-to-business transactions, building on agreed EU-wide reforms under the VAT in the Digital Age (ViDA) package. The phased rollout will see large corporates as first to adopt e-invoicing and real-time reporting for domestic business-to-business transactions in November 2028, followed by all VAT-registered businesses engaged in cross-border EU business-to-business trade in November 2029.
We’re here to help you
Finance Bill 2025 comes at a time when there is still considerable uncertainty in the global economy. The Bill contains many important changes that will have implications for domestic and international corporations. Our tax team is available to help you understand how these changes will impact your business. Get in touch today.
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