Funds Taxation
As announced on Budget Day, the Finance Bill reduces the rates of taxation that apply to investments in Irish-domiciled funds and life assurance policies, other than those applying to companies, personal portfolio investment undertakings and personal portfolio life assurance policies. It also reduces the rates that apply to equivalent offshore funds and certain foreign life assurance policies. The rate applicable to the following taxes and forms of investment is being reduced from 41% to 38%:
Divident Withholding Tax Exemption for Investment Limited Partnerships
Following extensive industry engagement on the matter earlier this year, Finance Bill 2025 provides for the introduction of a Dividend Withholding Tax Exemption for Investment Limited Partnerships and equivalent EU/EEA partnerships.
This is an important development aimed at supporting opportunities for growth in the funds industry, specifically in the private assets space. This amendment is intended to increase the attractiveness of the Investment Limited Partnership as a fund structure and to help cement our position as a desirable location for regulated investment funds.
To avail of the exemption, an Investment Limited Partnership or equivalent EU/EEA partnership must be beneficially entitled to not less than 51 per cent of the ordinary share capital of the Irish company making the distribution.
The exemption is to apply in respect of distributions made on or after 1 January 2026.
Stamp Duty Exemption for Acquisitions of Shares
As announced on Budget Day, Finance Bill 2025 contains the legislation for the introduction of a new exemption from Stamp Duty on a conveyance or transfer of stocks or marketable securities of Irish registered companies where the securities are admitted to trading on a “relevant market” and the closing market capitalisation of the company that issued the securities was below €1 billion on 1 December in the previous year. The exemption will take effect from 1 January 2026.
As a result of the introduction of this new exemption, the Finance Bill provides for the repeal of an existing exemption for shares trading on the Euronext Growth market operated by the Irish Stock Exchange plc trading as Euronext Dublin. The repeal is to take effect on 1 January 2026.
Banking Levy
Finance Bill 2025 provides for a further 12-month extension of the Bank Levy so that it will continue to apply in 2026. The levy is payable by AIB, Bank of Ireland, EBS, and PTSB. The levy applies at the rate of 0.1025% of the value of deposits held by each bank on 31 December 2024, to the extent that such deposits are “eligible deposits” within the meaning of the European Union (Deposit Guarantee Schemes) Regulations 2015.
It is expected that the amount of levy collected in 2026 will again be in the region of €200 million.
Participation Exemption for Foreign Dividends
As readers will be aware, a participation exemption for foreign dividends was introduced last year. Finance Bill 2025 includes updates to the rules to enhance and extend the scope of the participation exemption to ensure that it remains competitive. Key updates include extending the geographic scope beyond the current scope of EEA and treaty partner jurisdictions, reducing the existing 5-year look-back period to 3 years, and other technical amendments and clarifications to improve the operation of the rules.
R&D Tax Credit Regime
The R&D tax credit currently provides a 30% tax credit for all qualifying R&D expenditure. Finance Bill 2025 provides for an increase in the rate of the R&D tax credit to 35% and an increase to the first-year payment threshold from €75,000 to €87,500. The first-year payment threshold is the amount up to which a claim can be paid in full in the first year, rather than paid in instalments over three years.
In recognition of the need to simplify the R&D regime, a new deeming provision is being introduced in relation to the amount of time an employee spends dedicated to qualifying R&D activities. Where companies can evidence that at least 95% of an R&D employee’s time is spent on qualifying R&D activities, then those emoluments are deemed to have been incurred wholly and exclusively in the carrying on of R&D activities.