Budget 2025 detailed analysis

"Plan, transform, and deliver for the future" will unlikely be achieved under this Budget.

The Minister for Finance Jack Chambers delivered his first Budget yesterday in the Dáil. Certain stakeholders in the economy will be disappointed. Key among those will be the hospitality sector which had heavily lobbied for the re-introduction of the reduced VAT rate. It is also another lost opportunity to drive domestic originated entrepreneurship by not strengthening the CGT Entrepreneur Relief regime, which is significantly less valuable than the equivalent regime for entrepreneurs in the UK.

However, there are welcome changes to commence the simplification of Ireland's corporate tax code and positive measures for early-stage support for domestic businesses. In particular, the introduction of the Dividend Participation Exemption and measures to enhance the R&D credit bolster our offering for corporates. Significant capital investments in infrastructure have also been announced which are crucial to maintaining an overall competitive offering to current and future potential FDI investments.

We have prepared a detailed response to key Budget 2025 announcements below:

Corporate tax - Ireland must seek to widen the Corporate Tax base

The Irish exchequer continues to benefit from significant increases in corporation tax receipts, which have grown exponentially in the previous 10 years, with August 2024 realising a 40% increase alone when compared to the same period last year. Corporate tax receipts were approximately €4bn in 2004, €24bn in 2023 and may hit close to €30bn in 2024.
While extremely healthy and still likely to grow significantly in the coming years, Ireland’s corporate tax receipts are concentrated among a small number of large US FDI investments in the technology and pharmaceutical industries. The latter has been flagged in recent weeks as subject to review by a Trump administration, should the Republicans regain the White House in 2025.

In the context of this concentration risk, it is important that Ireland seeks to widen the corporate tax base and boost Ireland’s attractiveness as an investment location, and therefore, the core focus for the current Government, and future Governments, must be aimed towards simplification of Irelands corporate tax regime, and incentivising businesses to operate from Ireland. Measures announced in the Budget are a small start to that process.

Pending the outcome of the next general election result, we expect the 2025 Budget measures should be complemented by other measures in the coming 48 months to further strengthen and simply the corporate tax code following significant complex changes layered into the regime in the past five years.

Dividend Participation Exemption - an important first step towards the simplification of Ireland’s corporate tax regime

As anticipated, the Minister for Finance, Jack Chambers, has confirmed that with effect from 1 January 2025, Irish legislation will include a tax exemption on certain foreign dividend income paid to Irish tax resident companies (Irish dividend participation exemption). Presently, Ireland stands as an outlier among EU countries and a select few OECD nations by employing a "tax and credit" system in relation to foreign source dividends, and therefore, this is a welcome change and represents an important first step towards the simplification of Irelands corporate tax regime, to continue to enhance Irelands FDI offering.

The detailed legislation will be included as part of Finance Act 2024, expected to be published next week, however, as the Department of Finance has completed two Public Consultations on the introduction of the Dividend Participation Exemption, we have some insight into the application and scope of the proposed legislation. Based upon the draft legislation as included in the Department of Finances Second Feedback Statement, the exemption is limited to dividends from EU/EEA states and tax treaty partner jurisdictions only. While it had been suggested that the introduction of the Pillar Two rules would assist in being able to extend the geographic scope of the exemption beyond EEA / Treaty jurisdictions, it was felt that certain safeguards would be required to achieve this, which would overly complicate the legislation.

This significant shift towards a dividend exemption underscores Ireland's endeavour to align more closely with prevailing international tax norms. To continue to boost Ireland’s attractiveness as an investment location for foreign direct investment, it is important that the Department of Finance continues to work with relevant stakeholders, to broaden the application of the Dividend Participation exemption in the future to apply to all dividends received by Irish tax resident companies, i.e. dividends received from jurisdictions outside of the EU / EEA / Treaty jurisdictions. Minister Chambers confirmed in his Budget 2025 Speech that “further consideration would be given to the geographic scope of the exemption and the extension of the exemption to Branch Profits”. This in addition to the recent launch of a Public Consultation on the Tax Treatment of Interest, with a view to simplifying Ireland’s interest deductibility regime, illustrates the Department of Finance’s commitment to the simplification of the Irish corporate regime, representing important steps to continue to enhance Irelands offering for FDI.

Irish business supports – “the life blood of our economy”

Minister Chambers further announced a number of supports to help smaller businesses as part of Budget 2025, stating in his Budget speech that "Businesses, both large and small, are the life-blood of our economy, and this Government is committed to supporting businesses so they can continue to grow, innovate, and create employment".

The following represents some of the key changes to be implemented as part of the Finance Act;

R&D Tax Credit

The Research and Development (R&D) Tax Credit is an important feature of the Irish Corporation Tax (CT) system, providing a 30% tax credit for all qualifying R&D expenditure. This is a generous credit relative to international standards. It is proposed to increase the first-year repayable credit threshold from €50,000 to €75,000, which is the threshold amount up to which a claim can be paid in full in the first year (subject to State Aid approval).

Start-up Relief

Start Up Relief currently provides a Corporation Tax relief for new small companies in the first five years of trading with an annual CT liability of less than €40,000, with marginal relief available to Companies with a CT liability of between €40,000 and €60,000. The relief is currently calculated by reference to employer PRSI paid of up to €5,000 per employee (which does not encompass PRSI paid by owner-directors). Budget 2025 proposes to extend the qualifying criteria to allow up to €1,000 of Class S PRSI per individual to count toward this cap.

Relief for listing expenses

A new measure has been introduced giving relief for expenses incurred on an initial stock market listing. An overall cap of €1 million of expenses per listing will apply (i.e. a cash tax value of €125,000), with the relief being claimable by a company in the year of first successful listing, on or after1 January 2025.

Measures to support audio visual Sector

Audio Visual Tax Credit – An Audio Visual tax credit for the unscripted production sector, has been introduced. The relief will take the form of a corporation tax credit for expenditure incurred on unscripted productions. The credit will be available at a rate of 20% of certain production expenditure up to a maximum limit of €15 million per project.
Section 481 Film Credit relief – An enhancement to the Section 481 film tax relief, with an uplift of 8% for certain feature film productions. The uplift will result in a tax credit rate of 40% for feature films in respect of projects with a maximum qualifying expenditure of up to €20 million.

Infrastructure investment

The Government has set aside significant funding for infrastructure investment, with the Minister announcing that funding of €1bn would be put towards water infrastructure, €1.25bn being put towards the Land Development Agency to deliver more social and affordable homes, and €750m to further develop the electricity grid infrastructure.

Prior to Budget 2025, business groups had raised significant concerns about the capacity constraint within the economy — particularly when it came to housing constraints, and whether Ireland’s electricity grid infrastructure could withstand the increased demand from the private sector. The ambitious scale of the infrastructure investment is clear signal of intent of the Irish State’s commitment to bolstering pillar infrastructure and address this perceived weak point of Ireland’s capability to absorb new significant FDI investment. Clearly, the proficiency of our public sector to deploy funds for large scale projects on a timely and efficient basis is in question, but this intent is positive and must be welcome.

VAT measures – disappointing Budget for the Hospitality sector is not a surprise

This is a disappointing Budget for the Hospitality sector, which lobbied hard in recent weeks and months for a return to the reduced 9% VAT rate. This was dismissed by the Government. The Tax Strategy Group Papers previously labelled this request as being “unjustified”, and its exclusion from Budget 2025 is not a surprise. We have set out as follows the key changes to the VAT regime.

VAT Thresholds - A proposed increase in the current VAT registration thresholds applicable to goods and services from €80,000 and €40,000 to €85,000 and €42,500 respectively. This measure effective from 1 January 2025 is designed to goods to assist small businesses outside of the VAT threshold to remain there.
A proposed extension of the second reduced rate (9%) applicable to electricity gas for a further 6 months to 30 April 2025 to address cost of living pressures associated with the price of gas and electricity.
Reduction in VAT rate applicable to supply and installation of heat pumps from 23% to 9%, proposed from 1 January 2025 to incentivise homeowners to install heat pumps.
The flat-rate scheme compensates unregistered farmers on an overall basis for VAT incurred on their farming inputs. Based on macro-economic data received from the CSO and the Revenue Commissioners for the period 2022-2024, this rate will increase from the current 4.8% to 5.1% from 1 January 2025.

Personal and Employment Tax – Budget aims to leave more money in employees’ and income earners’ pockets

As expected, Budget 2025 introduced several tax measures affecting individuals and households, with a continued focus support for low and middle income earners. The changes set out in Budget 2025 aim to leave more money in employees’ and income earners’ pockets, albeit there is no significant shift in income tax burdens.
With an income tax package of €1.4 billion, the following changes announced in Budget 2025 are as follows:

Tax credits Standard Rate Cut-Off Point and USC

All personal taxpayers will benefit from the increase by €125 in the personal tax credits, employee tax credits and earned income tax credits for 2025.
The increase in the standard rate cut-off point by €2,000, up to which the lower rate of income tax of 20% applies, will benefit all taxpayers.
The Home carer credit increased €150, single person child carer credit increased €150, incapacitated child credit increased €300, the dependent relative credit increased €60 and the blind tax credit increased €300.
There are also some small changes in the USC bands and percentages which will reduce the USC slightly for all taxpayers. A decrease of the 4% USC rate to 3% was announced which is the second reduction to this rate, previously 4.5% in 2023. The 3% rate will see an increase in the threshold by €1,622 in line with the increase of national minimum wage.

Rent tax credit

The announcement of the increased rent tax credit to €1,000 (and €2,000 for jointly assessed individuals) in the Budget reflects an ongoing effort to address the housing crises and provide relief to taxpayers renting private accommodation as costs and rents continue to soar. Households are grappling with the challenge to making ends meet and the increased tax credit offers some immediate relief as the change will also be effective for 2024.

While the increased tax credit provides immediate financial support and is a welcomed change in the Budget, it does not tackle the root cause of the housing crises. Individuals renting private accommodation need more sustainable solutions to ensure that they can find affordable homes rather than a temporary relief that may not keep in pace with rising rents.

Small benefit exemption - supporting employees in a time of rising living costs

The changes announced to the small benefit exemption (SBE) introduced by the Minister for Finance will certainly spark considerable discussion among employers and employees. This adjustment, which increases the maximum amount that can be provided tax-free to employees in a year, from €1,000 to €1,500, as well as the increase in the number of benefits that an employer can give from two to five per year, is a welcome move aimed at enhancing employee rewards. This enables employers to reward their employees throughout the year tax-free (provided that the cumulative total of first five benefits in a year shall not exceed €1,500).

One of the significant aspects of this change is its potential to support employees in a time of rising living costs. By allowing employers to provide small benefits without tax implications, businesses can offer tangible support to their workforce. Employers would usually provide gift vouchers, wellness benefit and other additional perks under the SBE.

While the increase in the exemption limit and the number of benefits that can be provided are commendable, companies must now ensure more than ever that proper documentation on the provision of these benefits and clear guidelines and communication are in place to make certain that SBEs are disclosed within Enhanced Reporting Requirement which was introduced in Finance Act 2022.

BIK exemption electric vehicle chargers

A BIK exemption is being introduced in circumstances where an employer incurs an expense in connection with the provision of a facility for the electric charging of vehicles at the home of a director or employee. This exemption serves as a significant encouragement for both individuals and businesses to transition to electric vehicles. This encourages employers to promote greener transportation options for their employees, which in turn will support the government’s target of achieving a significant reduction in carbon emissions by 2030.

Share-based remuneration

In his speech, the Minister acknowledged the significance of share-based remuneration. The Minister disclosed that his department has commissioned an independent review, and a report prepared for the Department of Finance has recommended measures to reduce the rising cost to the Exchequer. The Minister announced today that the report is under evaluation and will be given due consideration. The review, prepared by Indecon, includes recommendations on capping the level of the employer’s PRSI exemption, improving the KEEP scheme, addressing the taxation of RSUs, streamlining the administrative requirements for share-scheme reporting, and aligning the taxation of Employee Ownership Trusts (EOTs) with the UK's approach.

CAT Thresholds – Inheritance tax threshold increases for the first time in five years

The amount that a person can give by way of a gift or inheritance has been increased as announced in the Budget. The threshold has not seen an increase since 2019, and the increase to all the Group Threshold is a positive development given the increase in property values over the recent years. Group A will increase from €335,000 to €400,000; Group B will increase from €32,500 to €40,000, and Group C will increase from €16,500 to €20,000. No change is announced to the CAT tax rate of 33% which is prohibitively high by international standards.

Taxation of real estate – mansion tax introduced

Resolving the housing shortage crisis will be a challenge for many years to come. The shortage of affordable housing is particularly acute, and along with other infrastructure challenges, represents a significant threat to Ireland maintaining its attractiveness for investment. Budget 2025 announced a number of measures to tackle affordability, the supply of housing, and the rental market.

Stamp duty: In an effort to deter investment funds and investors acquiring multiple residential units the rate of stamp duty for bulk purchasers (10 or more residential units in a 12-month period) has been increased from 10% to 15%.
Vacant Homes Tax: To incentivize vacant homes being brough back into use the vacant homes tax rate has been increased from 5 to 7 times the existing LPT rate.
Help to Buy: The Help to Buy Scheme is an incentive to help first-time buyers to acquire new residential properties. The scheme has been extended until the end of 2029. This has been a valuable benefit to buyers, and it is beneficial to provide certainty for the medium term.
Rental Tax Credit: In recognition of the increased rents facing many renters the Minister has increased the rental tax credit to €1,000 and €2,000 for a jointly assessed couple. This increase will apply for 2024 and 2025 tax years.

View our Budget 2025 tax facts document