Ireland operates a worldwide system of taxation, meaning that Irish resident companies are taxed on their worldwide profits, with double tax relief for foreign tax paid on foreign source profits. Internationally, however, it is common for jurisdictions to operate quasi-territorial regimes through the exemption of certain foreign income. This “participation exemption” approach to relief for foreign taxation typically extends to dividends from foreign direct investments and gains from disposals of such investments, and it is often complemented by an exemption for foreign branch profits.
The roadmap sets out the following timeline for the introduction of a participation exemption for dividends:
Publication of project roadmap, including detailed consultation on the introduction of a participation exemption(s) to the Irish corporation tax system
Close consultation and consider responses
13 December 2023
Consideration of responses & further stakeholder engagement
December 2023 – March 2024
Feedback Statement 1 (Dividend Exemption)
End March 2024
Feedback Statement 2 (Dividend Exemption) – if required
Circa July 2024
Finance Bill 2024 – Legislate for dividend exemption to take effect from 2025
October – December 2024
The technical consultation includes 53 questions covering the structural design of a participation exemption regime for dividends, and other consequential amendments which may be required to accommodate the new exemption regime.
The roadmap document also includes 8 questions seeking further information in relation to a potential exemption for foreign branch profits, to inform further consideration of the policy merits of their proposal.
While the current system of double taxation relief for foreign dividends can, in the majority of cases, result in no additional Irish taxation arises, it is cumbersome to administer and complex to explain to investors. The introduction of a participation exemption for foreign source dividends would be a welcome change to the Irish tax code, significantly improving Ireland’s competitiveness internationally.
As regards the introduction of a foreign branch exemption, it appears the jury is still out and there is no certainty as yet on whether or not one will be introduced.
For more information on this please contact Angela Fleming, Head of Financial Services Tax.