Research & Development (R&D) Tax Credit
The Research and Development (R&D) tax credit is a broad measure, providing a 35% tax credit for qualifying expenditure incurred in the carrying on of R&D activities undertaken to resolve a scientific or technological uncertainty.
Following the review of the R&D Tax Credit, undertaken last year, and continuing work undertaken in line with plans set out in the Research & Development Tax Credit and Innovation Compass, Finance (No. 2) Bill 2026 provides for a number of enhancements to the R&D tax credit as follows:
In addition, technical work is ongoing on the development of relevant legislation to provide that, if a clinical trial is regulated, this fact may be used to satisfy the science test, to recognise R&D work undertaken by Irish companies as part of global trials and to reduce administrative burden. The amendment to introduce this legislation will be proposed at Committee Stage.
Knowledge Development Box
The Knowledge Development Box (KDB) is an OECD-compliant intellectual property (IP) regime which incentivises companies generating income arising from the IP created as a result of R&D activities. Companies must elect for KDB treatment to apply in respect of a qualifying asset and must retain the asset within the regime until the asset ceases to be used or is disposed of.
The Bill will extend the KDB to apply to accounting periods commencing on or before 1 January 2032 and will provide a time-limited option for existing claimant companies to opt out of the KDB regime in respect of all currently qualifying assets.
Tax Relief for Start-up Companies
The Tax Relief for Start-Up Companies provides relief from Corporation Tax on trading income (and certain capital gains) of new start-up companies in respect of their first five years of trading. The relief is designed to support the survival of new businesses, recognising that small businesses are significant drivers of employment across the country. The Bill extends to the relief to companies commencing to trade between 1 January 2027 and 31 December 2030.
Changes to Preliminary Corporation Tax Requirements
Preliminary Corporation Tax is an advance payment of a company’s expected tax liability for the current accounting period, payable during that accounting period. Two different payment systems apply, depending on whether a company is considered to be a large company or a small company for the purposes of preliminary tax.
Finance (No. 2) Bill 2026 will provide for a number of administrative changes to preliminary Corporation Tax requirements, to reduce uncertainty and improve flexibility for companies. There will be no net impact on the quantum of the Corporation Tax receipts; albeit the timing of Corporation Tax receipts may alter slightly in some cases.
Pillar Two
Amendments will be made to Pillar Two legislation to reflect the agreement of the OECD Side-by-Side Package in January of this year. Ireland is required to implement the agreement within specific timeframes in order to pass the OECD peer review process. The agreement provides for the following safe harbours:
Amendments will also be made to reflect further agreed Administrative Guidance published by the OECD in May and September this year. The Pillar Two rules in relation to penalty and filing provisions are also being updated.
Extension of the Bank Levy
The Bank Levy will continue to apply in 2027 to those banks that received financial assistance from the State during the banking crisis, and which are still operating in the State (AIB, EBS, Bank of Ireland and PTSB). As in 2026, it will be apportioned based on the level of deposits held by each liable institution at the end of 2024, and the target revenue remains at €200 million.
Taxation of Interest
A number of targeted amendments to interest legislation will be advanced in the Bill to simplify the existing provisions governing the taxation of interest. The amendments provide for simplifications to the existing provisions governing interest relief on borrowings taken out for certain lending and investment activities. The amendments have been informed by extensive stakeholder engagement and are designed to simplify and enhance the operation of our tax code in this area whilst maintaining important Exchequer safeguards.
The amendments will be delivered as a first set of amendments within the ongoing review of Ireland’s taxation regime for interest.
Introduction of a Pool Betting Charge
As announced in the Budget speech last year, the Bill introduces a new betting charge for totalisator or pool betting activities, which will commence on 1 January 2027. The basis for and rate of excise duty will be the same as for betting intermediaries, pool bets will be subject to a 25% duty on commissions earned. There will be an exemption for on course pool bets.
Enhanced Reporting Requirements
The Enhanced Reporting Requirements (ERR) will be amended to provide an option whereby employers may choose to continue to report ‘on or before’ certain tax-free payments are made, or alternatively, they may report the information by the 14th of the month following the Income Tax month in which the reportable benefit is provided to the employee. This amendment will provide greater flexibility to employers, in particular, SMEs, who have had difficulties with the current requirement to report these benefits ‘on or before’ they are made.
This follows stakeholder feedback and a recommendation of a recent report of The Cost of Business Advisory Forum.
