Financial Services

Key measures

• The proposed amendments broaden the Dividend Withholding Tax (DWT) exemption to include distributions to Investment Limited Partnerships (ILP). The draft legislation allows dividends to be paid free from DWT to an ILP or equivalent partnership authorised in the EEA, where the partners are beneficially entitled to not less than 51% of the ordinary share capital of the Irish company making the distribution, effective for distributions from 1 January 2026. 
• As announced in the Budget, the draft legislation reduces the rate of tax on certain investments from 41% to 38%. This should apply to income and gains from domestic life assurance policies, certain foreign life policies, Irish domiciled investment funds and equivalent offshore investment funds in other EU Member States, EEA States and OECD countries with which Ireland has double taxation agreements. This change should be effective for chargeable events occurring from 1 January 2026.
• The Participation Exemption for Foreign Dividends will be enhanced and a number of technical amendments are proposed which is based on feedback received. The reference period and relevant period for the exemption will be reduced from 5 years to 3 years reducing the period in which a company must be resident in a relevant territory prior to making a distribution. In addition, distributions from a territory with which Ireland does not have a double tax agreement will now be within the scope of the exemption where non-refundable withholding tax has been paid on the full amount of the distribution. These amendments are effective from 1 January 2026.
• A number of proposed amendments have been made to the Pillar Two legislation, and of particular relevance for securitisation companies, is the clarification that the definition of a minority-owned constituent entity includes an orphan entity that is a constituent entity. 
• Section 784A  proposes to introduce an obligation on qualifying fund managers (QFMs) to submit an annual return to Revenue in respect of each Approved Retirement Fund which the QFM administers and applies for years of assessment from 2026 with reporting to commence from 1 January 2027.
• An updated Chapter 2E will be introduced which governs the taxation elements of the Automatic Enrolment retirement savings scheme. This Chapter was previously provided for in Finance Act 2024 but has been repealed and re-inserted with a number of additional amendments.
• Section 891HA proposes to introduce the Crypto-Asset Reporting Framework, to transpose the OECD directive relating to the automatic exchange of information on crypto-assets, introducing reporting obligations for crypto-asset service providers, effective from 1 January 2026.
• The Finance Bill proposes to extend SARP for 5 years to 31 December 2030 and increase the base salary requirement to €125,000 with relief of 30% in excess of that up to an income ceiling of €1 million. The Bill proposes that the existing certification deadline of 90 days remains but that where the employer certification is after 90 days but within 180 days of arrival the individual can still qualify for the relief but would only be able to claim for 4 years instead of 5.
• A number of more wide-ranging measures which may be of relevance to financial services participants have also been included in the Finance Bill, including amendments to the Bank levy and Country-by-Country reporting provisions. 

Who will be affected?

The measures will impact a broad range of financial services stakeholders including investment fund managers, life assurance companies, financial institutions, crypto-asset service providers and other financial services industry participants. 

In particular, the dividend withholding tax exemption for ILPs will be well received by the funds industry as it enhances Ireland’s position as a desirable location for regulated investment funds, in particular those in the private equity space. The expanded participation exemption further strengthens Ireland’s international competitiveness which also stands to strongly benefit the financial services industry.

While most of the changes were well signposted, it is important at this stage for taxpayers to carefully consider the provisions as drafted in advance of committee stage and feedback any comments accordingly.

What now?

It is advisable for interested parties to undertake a detailed review of the Finance Bill 2025 provisions to understand the implications of the relevant tax provisions. In particular, there are a number of reporting obligations which should be carefully evaluated to ensure operational readiness as the measures seek to promote more transparency.

Our view 

Overall, the provisions introduced are welcome changes for the Financial Services industry as a whole. 

The proposed exemption from DWT in respect of an investment limited partnership or equivalent partnership is long awaited and aid in the promotion of Ireland’s strategy to encourage growth into private assets by foreign and domestic institutional investors. We do note however that Finance Bill 2025 does not address the interaction of ILPs with the Outbound Payment Defensive measures.

The proposed reduction in tax rates on life assurance policies and investment funds from 41% to 38% is another favourable development enhancing Ireland’s competitiveness as a domicile for insurance and investment products. 

The proposed extension and refinement of the participation exemption, including reduced residence periods and inclusion of distributions subject to withholding tax further bolsters Ireland’s attractiveness for foreign direct investment and makes the provisions introduced last year more widely applicable.

The clarification of the definition of a minority-owned constituent entity to include orphan entities provides more certainty for certain Section 110 companies on the applicability of Pillar Two.