A Major Step Forward in Corporate Tax Reform

As of 1 January 2025, Ireland has introduced a Participation Exemption for foreign dividends, marking a significant positive development in Ireland’s corporate tax framework. This reform, announced in Finance Bill 2024, aligns Ireland with international best practices and enhances its competitiveness as a destination for global investment.

What Is the Participation Exemption?

The Participation Exemption for foreign dividends allows Irish-resident companies to receive foreign dividends tax-free, provided certain conditions are met. The change will operate in parallel to the existing system where foreign income was taxed in Ireland, with relief available for foreign tax paid. Corporate taxpayers can now however, opt to avail of the Participation Exemption for foreign dividends instead of the existing tax credit system on a year-by-year basis. The change simplifies compliance and reduces the effective tax burden on cross-border investments.

Why Is This Important?

Ireland has traditionally operated a worldwide tax system, taxing both domestic and foreign profits. Most EU and OECD countries, however, use a territorial system, exempting foreign income from domestic tax. The new exemption brings Ireland in line with these jurisdictions, making it more attractive for multinational groups and holding companies.

Key Benefits for Businesses

• Simplified Tax Compliance: Reduces the need for complex double taxation relief calculations.
• Increased Certainty: Provides clarity for companies planning international structures.
• Enhanced Competitiveness: Supports Ireland’s reputation as a business-friendly jurisdiction.
• Alignment with OECD Pillar Two: Complements recent reforms introducing a 15% minimum effective tax rate for large multinationals.

What’s Next?

The Department of Finance has indicated that further reforms may follow, including a potential exemption for foreign branch profits. A roadmap and technical consultation have already been published, with stakeholder feedback shaping the final legislation.

Conclusion

The introduction of the Participation Exemption for foreign dividends is a welcome development for Irish businesses with international operations. It reflects Ireland’s commitment to maintaining a modern, competitive, and transparent tax system. Companies should review their group structures and dividend flows to assess how they can benefit from this new regime.

If you’d like tailored advice on how the Participation Exemption for foreign dividends could impact your business, our team is here to help.