Budget 2026 includes enhancements to the Research and Development (R&D) tax credit and to various other reliefs including the Key Employee Engagement Programme (KEEP), the Special Assignee Relief Programme (SARP) and the Foreign Earnings Deduction (FED).
Improvements to the dividend participation exemption were also announced including an extension of the geographical scope of the exemption.
The Minister also announced that a public consultation on withholding tax will be launched shortly.
R&D tax credit
The Minister announced several important updates for the R&D tax credit in Ireland following the feedback received through the public consultation earlier this year (you can read our response here) and acknowledging the importance of the relief in driving competitiveness in Ireland. The three main enhancements are as follows:
- The rate of the tax credit has been increased from 30 percent to 35 percent,
- An increase in the first-year payment threshold from €75,000 to €87,500 aimed at supporting smaller R&D projects, and
- An administrative simplification measure was also announced which will allow 100 percent of an R&D employee’s emoluments as qualifying costs where at least 95 percent of time is spent on qualifying R&D activities.
The Minister also announced the forthcoming publication of an R&D Compass, which will outline the strategic direction for future developments in research, development, and innovation supports. The R&D compass will also consider changes to the R&D tax credit with respect to the definitions of outsourcing and qualifying expenditure.
Key Employee Engagement Programme
The Key Employee Engagement Programme (KEEP) has been extended to 31 December 2028. This extension is subject to approval by the European Commission.
Special Assignee Relief Programme
The Special Assignee Relief Programme (SARP) is being extended for five years, to 31 December 2030. From 1 January 2026, an annualised salary of €125,000 or above will be required to qualify for the relief. New entrants to the scheme from 2026 onwards may benefit from an income tax exemption on 30 percent of relevant annual employment income between €125,000 and €1 million. This change will not apply to existing claimants who continue to avail of SARP in 2026 and further years.
Simplification of certain relevant administrative requirements are expected to be announced in Finance Bill 2025.
Foreign Earnings Deduction
The Foreign Earnings Deduction (FED) will be extended for a further five years, up to 31 December 2030. In addition, from 1 January 2026, the scheme will be enhanced by increasing the cap on qualifying employment income for Income Tax relief from €35,000 to €50,000.
The scope of the relief is also to be broadened to include qualifying workdays spent in the Philippines and Turkey. Changes will also be introduced in Finance Bill 2025 to streamline certain administrative requirements.
Participation exemption for certain foreign dividends
The participation exemption for foreign dividends, introduced in the Finance Act 2024, marked a significant enhancement to Ireland’s tax framework.
The Minister announced that several changes to the exemption will be provided for in Finance Bill 2025 which include:
- Broadening the geographic scope to include qualifying dividends received from jurisdictions that apply a non-refundable dividend withholding tax.
- The period for which companies must have been resident in a jurisdiction within the geographic scope of the relief before paying a dividend will be reduced from five years to three years.
- Clarification was provided that the acquisition of a shareholding is not considered to be an acquisition of business assets for the purposes of the participation exemption.
The Institute welcomes these changes as we had previously raised these recommendations in a letter which you can read here.
Further details will be set out in Finance Bill 2025.
Film Tax Credit
The Film Tax Credit is being enhanced to introduce a new 40 percent rate for productions with a minimum eligible expenditure of €1 million on relevant Visual Effects work. The rate will apply on qualifying expenditure up to a maximum of €10 million per production. The changes are subject to approval by the EU.
Digital Games Tax Credit
The Digital Games Tax Credit is being extended by six years to 31 December 2031. In addition, the credit is being enhanced to allow for claims in respect of Post-Release Content work, subject to certain conditions being satisfied. The changes are subject to approval by the EU.
Accelerated Capital Allowances for Energy Efficient Equipment
The Accelerated Capital Allowances Scheme for Energy Efficient Equipment which provides for an accelerated deduction of 100 percent of the asset cost in year one for qualifying equipment is being extended to 31 December 2030.
Accelerated Capital Allowances for Gas Vehicles and Refuelling Equipment
The Accelerated Capital Allowances Scheme for gas vehicles and refuelling equipment is being extended to 31 December 2030. This scheme provides a tax incentive for companies and unincorporated business that invest in vehicles which run on compressed natural gas, liquefied natural gas, biogas or hydrogen, and in related refuelling equipment.
Capital Allowances for Intangible Assets
The Minister indicated that amendments are being made to the intellectual property capital allowances legislation regarding how balancing allowances, which arise on certain events such as the disposal or transfer of the asset, can be used. A Financial Resolution will be brought forward on the night of Budget 2026 to provide for these amendments with immediate effect and will be followed by legislation in Finance Bill 2025.
Capital Gains Tax Revised Entrepreneur Relief
The lifetime limit on which the Revised Entrepreneur Relief can be claimed will be increased to €1.5 million from 1 January 2026. The relief now provides for a reduced rate of CGT of 10 percent on gains of up to €1.5 million, over a lifetime, arising from the disposal of qualifying business assets.
Bank Levy
The Bank Levy is being extended for a further year and will apply in 2026.
Withholding Taxes
As part of his Budget speech the Minister announced that a public consultation on withholding tax will be launched soon.
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