2025 Irish Budget – our thoughts and what we predict

With potential changes from Minister Jack Chambers involving the SME sector, Research and Development (“R&D”) and even Capital Gains Tax (“CGT”), Michael McGivern, Partner and Head of Tax, reflects on the key issues and considerations.

Following on from the 2024 Irish Budget, and after May’s National Economic Dialogue, the Irish economy is currently in good shape statistically. However, behind the current positivity the Irish Government will wish to avoid an overreliance on a small number of existing multi-national enterprises (MNEs) in Ireland. The Government has also acknowledged the increased global competition for foreign direct investment.

Within this context, in our view, the main areas where Minister Chambers should focus on shaping Budget 2025 are: 

• Enhancing support for Ireland’s SME sector
• Increasing Ireland’s tax competitiveness

Specific areas where we would like to see some movement in Budget 2025 include: 

• Employment and Investment Incentive Scheme (EIIS)
  • This is an important source of funding for many SMEs and required improvements to the regime include:
    • A removal of the restriction on bona fide holding company structures,
    • Less severe sanctions for genuine errors in administering what is already a very complex regime, and
    • A relaxation of the very challenging three-year targets relating to an increase in both the numbers employed in an EIIS company and an increase in employee remuneration.
• Key Employee Engagement Programme (KEEP)
  • The policy objective behind KEEP is a good i.e. to enable SMEs attract and retain skilled workers through the provision of enhanced share-based remuneration when compared to that which can offered by MNEs.
  • However, in many areas, the KEEP rules remain too restrictive.
  • In particular we would welcome:
    • A relaxation in the definition of qualifying holding company
    • Some safe harbour mechanism around what is “market value” for KEEP purposes
    • A removal of the link between an employee’s salary and the amount of share options that can be awarded
• Revised Entrepreneur Relief – A relaxation is required to the definition of a qualifying holding company, and also amendments are required so that many common forms of business disposals are not adversely affected (trade sales v share sales etc)

• CGT 
  • Ireland’s CGT headline rate of 33% is one of the highest in Europe
  • It is generally accepted that high CGT rates stifle investment activity, while lower CGT rates generally encourage entrepreneurship
  • The Irish CGT rate should be reduced
• Introduce as branch exemption at the same time as a dividend participation exemption
  • Due to the close links between the two, in our view, a foreign branch exemption for Irish corporation tax should be introduced in Finance Bill 2024 at the same time as the envisaged foreign dividend participation exemption
• Reform of Ireland’s interest deductibility rules
  • Ireland has one of the most complicated interest deductibility regimes within the EU
  • This came about because the complex rules of ATAD ((i.e. 30% of EBITDA) were simply placed on top of the existing comprehensive and complicated regime
  • Urgent reform and simplification of the current regime is now overdue

• The 2024 Irish Budget provided that the first €50,000 of an R&D tax credit claim may to be paid in full in the first year of the claim. In our view this limit should be raised.
• The definition of R&D for tax purposes should be aligned with IDA Ireland’s and Enterprise Ireland’s definitions.
• The outsourcing limits of the greater of 15% of inhouse R&D spend or €100,000 should be increased.
• Revenue’s narrow interpretation of what rental expenditure qualifies for the credit should be expanded and put on a legislative footing.

For more information on how our tax team can advise and help your business contact Michael McGivern and Adrian Walker.