Ireland Inc. and Foreign Direct Investment

Key measures

Budget 2026 introduces a range of targeted tax policy changes designed to strengthen Ireland’s position as a leading destination for Foreign Direct Investment (FDI) while supporting innovation, enterprise, and competitiveness.

A key highlight is the enhancement of the Research & Development (R&D) Tax Credit, with the rate increasing from 30% to 35% and the first-year payment threshold raised from €75,000 to €87,500. This supports smaller R&D projects and aligns with Ireland’s commitment to fostering innovation-led growth. An “R&D Compass” will be published in the coming weeks which will consider targeted changes to the R&D tax credit to better align with industry practices, for example in the areas of outsourcing and qualifying expenditure definitions.  

The participation exemption for foreign dividends has been expanded to include jurisdictions applying non-refundable dividend withholding taxes, simplifying double tax relief and broadening Ireland’s appeal as a holding company. The qualifying period for subsidiaries has also been reduced from five to three years, improving flexibility. 

The Special Assignee Relief Programme (SARP) is extended to 2030, with the minimum qualifying salary increased to €125,000 and administrative simplifications to follow in the Finance Bill. The Foreign Earnings Deduction (FED) is also extended to 2030, with the relief limit increased to €50,000 and expanded geographies to include the Philippines and Türkiye (Turkey). 

Budget 2026 also advances tax system simplification and modernisation. An Action Plan to reform the taxation and deductibility of interest in Ireland will be progressed, with a feedback statement due in November 2025.  

VAT e-invoicing will be phased in to modernise VAT administration, enhancing compliance and efficiency in line with EU VAT law changes, with a publication due from Irish Revenue in this regard over the coming days.  

The taxation rates on Irish domiciled and equivalent offshore investment funds and life assurance policies are reduced from 41% to 38%, supporting Ireland’s competitive financial services sector. 

These measures collectively reinforce Ireland’s FDI competitiveness, innovation ecosystem, and tax system resilience amid evolving global tax landscapes, including Pillar Two developments. 

In the audiovisual sector, the Section 481 Film Tax Credit is enhanced with a new 40% relief rate for productions investing at least €1 million in visual effects, capped at €10 million per production. The Digital Games Tax Credit is extended to 31 December 2031 and now includes post-release content expenditure, reflecting industry practices and encouraging sector growth. 

Please note that some of these enhancements, including changes to the Film and Digital Games Tax Credits, are subject to approval under EU State Aid rules. 

Who will be affected and when?

Multinational corporations, SMEs, and sectors such as audiovisual and digital gaming will benefit from enhanced tax credits and reliefs effective primarily from 1 January 2026. Employees qualifying for SARP and FED should note the extended timelines and updated thresholds. Financial services entities will see reduced tax rates on investment funds and life assurance policies from 2026. VAT e-invoicing will be introduced in phases starting shortly, requiring businesses to adapt to new compliance requirements. Interested parties should continue to monitor developments on the consultation relating to Ireland’s interest regime over the coming months. 

What now?

Businesses should assess their eligibility for the enhanced R&D Tax Credit and participation exemption once the Finance Bill is published.  

Employers and employees should review SARP and FED changes to ensure compliance and fully understand the implications for them.

Companies should monitor upcoming publications from Irish Revenue in respect of VAT e-invoicing requirements and the forthcoming interest regime reform consultations to influence policy and adapt accordingly. 

Engagement with tax advisors is recommended to navigate these changes effectively, ensuring alignment with Ireland’s evolving tax landscape and maximising opportunities arising from Budget 2026. 

Our view

Budget 2026 demonstrates Ireland’s strategic commitment to sustaining and enhancing its FDI attractiveness through targeted tax incentives and tax system modernisation. While the measures introduced on the participation exemption on foreign dividends are positive, further work is required to extend the exemption to foreign branch profits, in order to benchmark against our international competitors. In addition, while the R&D tax credit rate increase is certainly welcome, we look forward to continuing to engage with the Department of Finance over the coming months in respect of enhancing the rules around subcontracting and the definition of “qualifying expenditure”, to maintain Ireland’s attractiveness as an innovation hub for FDI.  

The reduction in tax rates on investment funds and life assurance policies strengthens Ireland’s position as a global financial services hub, and we await the governments roadmap on this in early 2026.  

Deloitte advises clients to proactively engage with these changes, leveraging enhanced incentives and preparing for compliance obligations to maintain competitive advantage. 

We await the publication of the Finance Bill in the coming weeks for further information on these measures.