Budget 2026 included some welcome measures for large multinationals operating in Ireland. The increase in the R&D tax credit to 35% was the main highlight for corporate taxpayers. While the Minister also announced improvements to the participation exemption for foreign dividends, the specific details of those changes will not be available until the Finance Bill is issued next week. The Budget included one unexpected restriction on the use of balancing allowances generated on sales of IP which was implemented with immediate effect. A number of public consultations were also announced signalling that change is coming in the medium term in a number of areas.
Improvements to the R&D Tax Credit
The R&D tax credit has been increased from 30% to 35%. This will make the Irish regime one of the most generous offerings in Europe. In the coming weeks, an ‘R&D Compass’ will be issued outlining the next steps for further improving the regime. Those improvements will extend to the treatment of outsourced R&D and a regime for supporting innovation will be considered.
Changes to the Participation Exemption
The geographic scope of the participation exemption will be extended to include jurisdictions that apply non-refundable withholding taxes to dividends. Further technical amendments to the exemption will be made in the Finance Bill, including changes to the five-year look-back rule which has been challenging to apply in practice.
So far, two changes to the five year rule have been flagged: (i) the length of time a subsidiary must have been resident in a tax treaty or EU / EEA jurisdiction will be reduced to three years and (ii) the legislation will clarify that the acquisition of a shareholding is not the acquisition of business assets for the purposes of the exemption.
Sales of IP Subject to Capital Allowances
One of the unexpected announcements made and passed on the day of the Budget was a change to the regime that applies to sales of IP that previously qualified for Ireland’s capital allowances regime (section 291A of the Taxes Consolidation Act 1997). Capital allowances claimed under the section 291A regime can only be offset against profits of an IP trade and are capped annually at 80% of the profit from that trade. In cases where the sale of such IP generates a balancing allowance (i.e., when the tax written down value of the IP exceeds the market value), that allowance will similarly be restricted so that it may only be offset against profits of an IP trade and capped at 80% of the profit from that trade.
That change had not been signalled in advance of Budget 2026 and was passed and became effective from 8 October 2025, with further measures due to be included in the Finance Bill.
Future Changes Signalled
The Minister is continuing to consider change in a number of areas and over the coming weeks and months will issue a series of public consultations and roadmaps targeting specific areas:
- Taxation of interest: changes will be made to Ireland’s system for taxing interest. A public consultation on taxing interest closed in January 2025. All stakeholders advocated in favour of fundamental reform of the existing regime which has become cumbersome over time as a result of domestic and international tax reform. As a next step, the Minister will issue a phase one consultation on 16 November 2025 with a view to proposing initial changes in Finance Bill 2026.
- Gig economy: the Minister indicated that administrative changes might be made to how tax is collected on new and developing business models. This is understood as a reference to the taxation of the so-called ‘gig economy’ and could result in new withholding taxes being introduced on payments made through online platforms to Irish residents. The Minister confirmed that a consultation will be launched soon.
- Electronic invoicing and real time reporting: on 8 October, the Irish Revenue Commissioners (“Revenue”) issued an Implementation Plan outlining Ireland’s timeline for moving to electronic invoicing and real time reporting for business-to-business transactions (as required under the EU VAT in a Digital Age programme). Phase One will commence in November 2028 and will require large corporates to implement the changes for domestic business-to-business transactions. In advance of that, Revenue will engage with stakeholders, publish detailed guidance and technical specifications.
Next Steps
More detail on the Budget announcements will be included in the Finance Bill which is expected to be published on 16 October 2025. The draft legislation will be debated by the Oireachtas and is expected to be signed into law before the end of the year.
Should you have any questions on how the announcements made in the Budget will impact your business, please speak to any of our Tax partners or to your usual Matheson contact.