Deloitte Pre-Budget 2027 submission

In today’s uncertain economic climate, encouraging investment from within Ireland is crucial for long-term growth and stability. Supporting local entrepreneurs, family businesses, and SMEs drives job creation, innovation, and wealth retention. However, the current tax system, including a high capital gains tax rate, often hinders business succession and reinvestment. To support Domestic Direct Investment (DDI), targeted tax reforms are needed to create a more supportive environment for domestic investors, promote balanced regional growth, and enhance Ireland’s global competitiveness.

Capital Gains Tax Rate Reduction: Reducing the headline Capital Gains Tax (CGT) rate to 20% is proposed as a priority in Budget 2027. The current 33% rate is internationally uncompetitive and one of the highest in Europe, creating a “lock-in effect” that discourages asset sales, delays business succession, and restricts capital mobility. In our view a 20% CGT rate would unlock capital for reinvestment and strengthen Ireland’s Domestic Direct Investment (DDI).

Increase CGT Entrepreneur Relief Lifetime Limit: Raising the CGT Entrepreneur Relief lifetime limit from €1.5 million to €3 million is recommended in Budget 2027. The current limit restricts high-growth businesses and risks losing entrepreneurs to more favorable tax jurisdictions. Increasing this limit would enhance Ireland’s global competitiveness and encourage reinvestment. 

Irish Savings and Investments Scheme: The design and introduction of an Irish Savings and Investments Scheme with a tax-free element and an annual contribution limit is advised, drawing lessons from successful international models including the UK (ISA), Canada (TFSA), Sweden (ISK), and France (Livret A). The scheme should prioritise simplicity to encourage broad participation and strong incentives to move savings from deposit accounts into productive sectors, thereby channeling household savings into economic growth and supporting indigenous business development.

For all recommendations, please refer to Section 1 of the submission.

Rapid and ongoing developments in international tax policy at EU and OECD levels, alongside deglobalisation, are increasing complexity and uncertainty in the Irish tax environment. Despite strong growth in corporation tax receipts, a significant government revenue source concentrated among a few large firms, Ireland must adopt bold strategies to retain existing businesses and attract future investment amid these evolving global challenges. Ireland’s tax policy as respects inward investment needs to be mindful of these challenges and our regime needs to be well positioned not only to retain existing business but also to win the next wave of investment.

Interest Deductibility Simplification: Adopting a broader, principle-based relief for interest expenses incurred for the purpose of trade, profession, or business, rather than a narrow “profit motive” test is recommended. Complex interest rules and outdated anti-avoidance provisions hinder M&A and inbound investment. We further recommend considering the repeal of outdated anti-avoidance provisions as modern anti-avoidance rules and Interest Limitation Rules (ILR) provide sufficient safeguards. The overall policy objective should focus on simplification and streamlining of the tax system to enhance Ireland’s attractiveness for foreign direct investment.

Participation Exemption Alignment: The “qualifying participation” rules should be aligned with the substantial shareholding exemption for CGT to reduce complexity. Additionally, we propose introducing an elective foreign branch exemption to simplify the tax system, reduce compliance workload, and enhance Ireland’s attractiveness for foreign direct investment. The exemption should cover distributions from equivalent or similar interests to equity, not just “ordinary share capital.”

Financial Services Modernisation: The financial services tax regime should be modernised to support Ireland’s position as a global financial center. This includes removing the funds’ specific legislation (that covers Irish domiciled funds, offshore funds, Investment Undertakings, Life Assurance regime etc.) to align those the treatment of those investments with the general CGT regime, including allowing for loss relief. We further recommend amending section 110 regime by allowing deductions for withholding tax suffered and removing the 8-week deadline for making elections. 

For all recommendations, please refer to Section 2 of the submission.

The R&D tax credit remains crucial to Ireland’s economic growth by attracting investment and boosting productivity, though ongoing global economic headwinds require adaptation. A simple, transparent, and approachable Irish tax system is essential to reduce compliance costs and uncertainty, thereby fostering investment, economic growth and long-term confidence among both domestic and foreign businesses. 

R&D Tax Credit Reforms: Changes to the R&D tax credit regime are proposed to strengthen intellectual property ownership in Ireland and create higher-value R&D roles. Specifically, we recommend amending the legislation to include related party expenditure within the scope of the R&D tax credit, capped at 100% of internal R&D spend, with embedded protection mechanisms to ensure this treatment is only available to intellectual property owners. We further recommend removing or substantially increasing the current limits on subcontracting R&D activities to universities and higher education institutes and expanding the definition of “university or institute of higher education” to include affiliated entities such as university hospitals. Additionally, we recommend increasing the cap on expenditure for subcontracting R&D work to unconnected parties and treating costs incurred for agency staff on R&D activities similarly to internal staffing costs.

Digitalisation: The introduction of a new standalone digitalisation tax credit is strongly encouraged for relevant expenditure related to the safe development, implementation, and use of digitalisation, including artificial intelligence. The credit should be aligned with the existing R&D tax credit format but with a different science test and a lower bar for advancing computer science. It should be designed as a “qualified refundable tax credit” for Pillar Two and US Foreign Tax Credit Regulations to enhance Ireland’s attractiveness and drive future tax revenue. Looking beyond immediate priorities, it is essential that Ireland adopts a forward-looking approach to the transformative impact of artificial intelligence (AI) on the economy and the tax system. With Ireland taking on the EU Presidency, a distinctive opportunity arises to spearhead dialogue on the evolution of tax policy in response to AI-induced shifts in business models and labour market dynamics.

Decarbonisation: A new standalone decarbonisation tax credit is proposed for expenditure incurred by businesses to lower carbon emissions. This credit should focus on emission reduction rather than scientific innovation, distinct from the R&D tax credit, and be designed as a “qualified refundable tax credit” for Pillar Two and US Foreign Tax Credit Regulations. This measure is critical to drive the decarbonisation agenda and help Ireland meet its climate targets of 51% GHG reduction by 2030, avoiding significant non-compliance costs that could reach €20 billion by 2030.

Investment Tax Credit: The introduction of a new standalone investment tax credit, similar to Luxembourg’s regime, is suggested to incentivise investments in software development, digital infrastructure, cybersecurity, and tangible depreciable assets such as hardware and energy-efficient machinery. This credit would align Ireland’s tax incentives with competitor jurisdictions and support sustainable practices and environmental goals.

For all recommendations, please refer to Section 3 in the submission.

Ireland’s housing and real estate market continues to face a critical structural imbalance between robust demand and severely constrained supply, exacerbated by wider socio-economic challenges. Tax policy and targeted incentives play a pivotal role in the future development and delivery of housing both for purchasers and renters alike. Despite the introduction of specific incentives and reliefs in Finance Act 2025 targeting the real estate sector, Ireland continues to face challenges in meeting its annual and broader housing delivery targets.

Tax Incentives for Strategic Supply: To adhere to housing targets, we recommend the introduction of further tax incentives and reliefs, targeted, time-bound, regularly monitored, and transparent, to stimulate the construction, repurposing, or renovation of various housing types. We recommend considering tax incentives and reliefs for student accommodation, employer-provided accommodation, co-living spaces, nursing homes, and independent living accommodation to diversify housing supply and meet varied market demands.

International Investors and IREF Regime: The introduction of a form of reconstruction relief for Irish Collective Asset Management Vehicles (ICAVs), similar to the Investment Undertaking Tax (IUT), is proposed. Additionally, simplifying the formula for third-party debt reduction is advised, as the associated calculations are cumbersome and surplus to requirements given the Central Bank of Ireland’s leverage limit rules.

For all recommendations, please refer to Section 4 in the submission.

Ireland’s capacity to attract and retain skilled talent is vital for its economic growth and international competitiveness. Supporting local entrepreneurs, family businesses, and SMEs drives job creation, innovation, and wealth retention. However, the current personal tax regime, Special Assignee Relief Programme (SARP) limitations, and immigration system delays pose significant hurdles to attracting and retaining the skilled workers Ireland needs for sustained economic growth.

Personal Tax Regime Enhancement: Increasing the Standard Rate Cut-Off Point (SRCOP) to at least €50,000 is proposed to address the disproportionate tax burden on middle-income earners, as the current SRCOP is below the average income. Additionally, capping the combined income tax, PRSI and USC rate for workers at a rate less than 50% would enhance Ireland’s competitiveness in attracting and retaining talent.

SARP Modernisation: It is urged that the government make SARP a permanent feature of the tax code by removing the sunset provision entirely. The 90-day certification requirement as a condition for relief should be removed; if retained, it ought to be treated as an administrative requirement with fixed penalties for non-compliance. Amendments to allow direct hires into Ireland to qualify for SARP are suggested, alongside extending SARP relief to Universal Social Charge (USC) and Pay Related Social Insurance (PRSI) for employees and employer’s PRSI. Allowing up to 20 workdays in Ireland before employment commences, including all remuneration for the €125,000 minimum income requirement, extending relief to employees of all employers (not just Treaty/TIEA States), reducing the 5-year non-resident requirement to one year, removing the cap on qualifying school fees, and considering extending the SARP period beyond 5 years (e.g., to 8 years) are also recommended.

Employment Tax Simplifications: Removing the current limit of five small benefits per year under the Small Benefit Exemption is advised to reduce administrative burden and risk for employers. Extending the timing for reporting small benefits to post year-end rather than real-time would also ease compliance. Extending the deadline for PAYE Settlement Agreement (PSA) payments (currently 23 days after year-end) is proposed to reduce administrative pressure. Developing consistent guidelines for the tax treatment of staff entertainment, with stakeholder input, is recommended. Furthermore, increasing the Foreign Earnings Deduction (FED) maximum to €100,000, extending relief to significant time working outside the State (not just “relevant jurisdictions”), removing the sunset provision, and extending relief to USC, PRSI, and the self-employed sector would provide broader support.

Cross-Border and Hybrid Working: We recommend that the Department of Finance and/or Irish Revenue issue guidance confirming that the principles of the updated OECD Model Tax Convention (2025) regarding Permanent Establishment (PE) risk from cross-border home working will be applied in Ireland. Recognising a home office as a “normal place of work” where a company has a flexible working policy and an employee performs duties at home is also advised.

Support for Olympic Athletes: Updating the definition of ‘specified occupation’ in the legislation to include all Olympic sports governed by national bodies is proposed, along with broadening relief to cover income from personal appearances, sponsorships, and philanthropy.

For full details on these proposals, please refer to Section 5 in the submission.

The importance of the Irish tax system being approachable, with simple, clear and straightforward policies cannot be overstated in creating a favourable business environment. SMEs can face a disproportionate burden in meeting tax compliance obligations due to the limited resources available to them. Simplification measures are therefore needed for this sector in order to provide a level playing field. 

SME Compliance Simplification: Rigorous application of the “Think Small First” principle across all tax legislation changes, forms, and guidance is essential to avoid disproportionate impacts on SMEs. A target to reduce administrative burden for SMEs by at least 35% (and 25% for firms) should be pursued, aligning with the EU Competitiveness Compass benchmark. Given that Ireland’s tax compliance burden in the real estate sector has become unsustainable, implementing a modernised, streamlined compliance framework is necessary to support efficient housing delivery and reduce unnecessary costs.

Investment Product Taxation Simplification: Simplifying the taxation of investment products is crucial. This could be achieved by introducing universal tax treatment of all investment income at marginal income tax rates, taxing all investment gains at CGT rates, providing CGT loss relief across all chargeable investments, eliminating multiple differing categorisations of investment types, and removing the 8-year exit charge for investment funds. The current complexity requires taxpayers to navigate various classification systems with differing tax treatments, which is unnecessarily burdensome.

R&D Administration Improvements: Eliminating or reducing interest and penalties for technical disagreements (excluding cases of fraud or neglect) would alleviate challenges faced by claimants. Establishing a central team of technical assessors would promote fair and consistent treatment, while setting clear timelines for receiving R&D refunds would help address significant cashflow difficulties. The current R&D tax credit claims process is particularly challenging for SMEs due to administrative demands, high costs, and technical disputes with Revenue, which can lead to interest, penalties, and public disclosure.

Taxpayer Rights and Appeals: Introducing an Alternative Dispute Resolution (ADR) mechanism, such as mediation or arbitration, would provide a less formal avenue for resolving tax disputes with Revenue. This need is heightened by the potential shift towards public hearings for tax appeals. Additionally, establishing an independent adjudication process for penalties imposed by Revenue officers would ensure fair and unbiased assessments.

For comprehensive details on these proposals, please refer to Section 6 in the submission.

For Budget 2027, the top spending priorities should focus on addressing Ireland’s critical housing shortage and upgrading aging infrastructure to support economic growth and attract skilled workers. 

Housing and Infrastructure: Ireland is currently experiencing a critical shortage of housing alongside aging water, electricity, and transport infrastructure. Delays in these areas hinder economic growth and the ability to attract and retain skilled workers. We recommend prioritising investment in housing and infrastructure to prevent future costly problems and support sustainable economic development. This should be achieved through a combination of tax incentives and direct government funding. Specific actions should include accelerating housing delivery by removing planning barriers and increasing developer incentives and modernising water and energy infrastructure by completing critical upgrades.

Health and Education: Sustained investment in health and education is essential to address the demands arising from population growth and demographic changes. These sectors play a critical role in enhancing living standards and workforce productivity, making continued funding vital to maintaining Ireland’s attractiveness for both global and domestic investment.

Business Development and Digital Services: Supporting enterprise, innovation, and digital transformation is key to strengthening Ireland’s competitive position and fostering job creation. Specific initiatives should focus on targeted measures for tourism and employment growth, reinforcing Ireland’s leadership in artificial intelligence, and leveraging the EU Presidency and the International AI Summit as platforms to showcase these advancements.

Climate Action and Sustainability: The transition to a sustainable economy is both an environmental imperative and an economic opportunity. We recommend investing in green technologies and infrastructure to create jobs, reduce long-term costs, and position Ireland as a leader in sustainable innovation. 

For all recommendations, please refer to Section 7 in the submission.