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October 4, 2024
2024-1830

Ireland Budget 2025 | An overview for international investors

  • Budget 2025 (the Budget), presented by the Irish Government on 1 October 2024, includes expenditure increases and tax measures.
  • This Alert summarizes the key elements for international investors.
  • Legislation giving effect to the measures presented in the Budget is scheduled for release on 10 October 2024.
 

Executive summary

The Irish Government presented Budget 2025 (the Budget) on 1 October 2024. The Budget provided for a total package of €10.5b, split across expenditure increases (both current and capital), a cost-of-living package and tax measures. This is the final Budget of the current Government. A general election is expected no later than March 2025. The Finance Bill 2024, which will include legislation giving effect to the measures presented in the Budget, is scheduled for release on 10 October 2024.

This Alert summarizes the key elements for international investors.

Context

The Budget was designed against a backdrop of a strong performance by the Irish economy in recent years which is expected to continue in the near term:

  • Modified gross national income (GNI*)1 is forecast to grow by 4.9% for 2024 and 2.7% for 2025.2
  • The rate of inflation is expected to remain below 2% for both 2024 and 2025 with the rate of unemployment projected at approximately 4.5%.3
  • A general government surplus of €23.7b4 (7.5% of national income) is forecast for 2024 with a surplus of €9.7b5 (2.9% of national income) expected for 2025.6
  • Corporate tax receipts are projected to be €37.5b in 2024, €34.3b in 2025 and €30.3b in 2026.7 Ireland's Central Bank forecasts of corporation tax intake anticipate a positive impact on Ireland's exchequer in 2026 as a result of the implementation of the Pillar Two rules. These forecasts also exclude the potential impact of the Pillar One rules, given the lack of clarity around the details and timing of those rules.8
  • General government debt is projected to be 69% of national income by the end of 2024 and 56% of national income by 2030.9

In his speech, the Minister for Finance (the Minister) acknowledged the critical importance of Foreign Direct Investment (FDI) to the Irish economy and noted the specific role of infrastructure in this regard, saying:

Infrastructure is a fundamental component of Ireland's competitiveness, and is vital to businesses, large and small, and to attracting new foreign investment into the State. Maintaining our competitiveness and having the means to improve it is vital to maintaining employment in all sectors of our economy, no matter where those jobs are located.

The Minister also focused on the ongoing work in the area of Ireland's international competitiveness beyond investment in infrastructure, stating:

It is critical that we continue to actively work on maintaining Ireland's attractiveness to businesses.

We must also support innovative businesses as they evolve to meet the challenges, and seize the opportunities, of an increasingly digitalised world.

Budget overview

The Government's key objectives for the Budget include delivering improvements in public services, boosting the resilience of the economy, promoting investments, improving infrastructure and supporting communities and businesses coping with the increased cost of living and doing business.

The Budget provided for a total budget package of €10.5b, which is broken down as follows:

 

€million

Current and capital expenditure

6,850

Temporary cost of living package

1,995

Tax measures (including temporary measures)

1,656

The expenditure package increase of €6.85b is split between increases in current and capital expenditure relative to 2024 of €5.22b and €1.63b, respectively.

The majority of the current expenditure is mainly focused on areas such as Healthcare, Social Protection, Education and Children.

The increase in the capital expenditure of €1.63b brings total capital expenditure for Budget 2025 to €14.9b. This expenditure is mainly allocated to investment in health, housing, education, transport and climate action. Specifically, €3b will be made available for investment in infrastructure, with €1b allocated to water-related infrastructure, €1.25b allocated to housing infrastructure and €750m allocated to electricity grid infrastructure. The availability of these funds is a result of the Irish State's partial disposal of its shareholding in Allied Irish Bank (AIB).

The Minister announced that, in the Government's view, the funds from the recent European Union (EU) State Aid case (valued at €14.1b as of 9 September 2024) should be used to address challenges relating to water, electricity, housing and transport infrastructure. To guide the use of the funds and to ensure the maximum rate of return, the Government is developing a framework for the allocation of windfall receipts. The ultimate guiding principles for this framework when developing the framework is for the continued expansion of the capital stock to support competitiveness, productivity and future economic development in a manner that is consistent with value for money. The funding framework should also be coordinated with other spending streams (i.e., the "Future Ireland Fund," the "Infrastructure, Climate and Nature Fund" and the National Development Plan). The Minister's objective is to submit this framework for Government approval by Q1 of 2025.

Consistent with recent years, the Government has also provided for a cost-of-living package to help households maintain standards of living, given the continued elevated price levels in particular energy costs. The funds allocated to this package total €1.9b with the majority of the package geared toward energy credits, fuel allowances, child benefits and various social protection measures.

The Budget also provides for a tax package of €1.6b. This is broadly comprised of:

  • €1.9b for taxation measures for individuals (e.g., widening income tax bands and various tax credits)
  • €149m for business support measures (discussed in further detail below)
  • €446m from tax raising measures (e.g., extension of the bank levy, increase to the carbon tax and increase in tax compliance receipts from targeted tax audit programs)

Key measures that are relevant for businesses include:

  • Dividend participation exemption — The Minister reiterated a commitment to introducing legislation to give effect to the dividend participation exemption as part of the Finance Bill 2024 on 10 October.The exemption will come into effect from 1 January 2025 and will provide a simplified mechanism for double tax relief for multi-national businesses. This will simplify repatriation and redeployment of funds via Irish holding companies.
  • Research and development (R&D) tax credit — The Minister has committed to a review of the R&D tax credit scheme in 2025. In the interim, it is being proposed to increase the first-year payment threshold from €50k to €75k.
  • Audio-visual (AV) sector relief — The tax incentives available to the film and wider AV sector are being expanded. A 20% corporation tax credit will be introduced for expenditure on unscripted productions up to maximum expenditure limit of €15m per project. This relief will require meeting a cultural test. Existing film relief is being amended through the introduction of the Scéal Uplift for producers of small and medium-sized productions. The uplift will result in a corporation tax credit of 40% on qualifying expenditures for feature films in respect of projects with a maximum qualifying expenditure of €20m.
  • Small benefit exemption — The relief that allows employers provide non-cash benefits or rewards to employees tax free will increase from an annual limit of €1,000 to €1,500. The relief has also been extended to permit five non-cash benefits in a single year as opposed to two.
  • Benefit-in-kind (BIK) — The Minister announced the provision of a BIK exemption for the installation of home chargers for electric vehicles for directors and employees
  • Social Security — As previously outlined in Budget 2024; to address the long-term sustainability of the State pension system a 0.1% increase in both employer and employee Pay Related Social Insurance (PRSI) contributions will take effect from 1 October 2025.
  • Pension auto-enrollment — The Government announced that auto-enrollment will commence on 30 September 2025. All employees not currently enrolled in an occupational pension scheme will be automatically enrolled in the Government scheme. Employers and employees will have to contribute 1.5% of the employees pay (up to a cap of €80k) and those amounts will gradually increase over the next 10 years to an ultimate contribution of 6% for employers.
  • Small and medium enterprise (SME) incentives -
    • The Employment Investment Incentive, the Start-up Relief for Entrepreneurs and the Start-up Capital Incentive are extended for a further two years to the end of 2026. In addition, the amount on which an investor may claim relief under the Employment Investment Incentive will increase from €500k to €1m and relief available under the Start-up Relief for Entrepreneurs will increase from €700k to €980k.
    • The Angel Investor relief for capital gains tax (CGT) that was announced last year in Budget 2024 will commence shortly. The relief provides for a reduced CGT rate of 16% (or 18% if invested through a partnerships) on disposals of qualifying investments. The scheme was introduced to promote investments in innovative start-ups. Budget 2025 proposes to increase the lifetime limit on gains from €3m to €10m.
  • Stamp duty — In an effort to discourage bulk purchases of residential properties by investment funds, the rate of stamp duty on bulk acquisitions of houses will increase from 10% to 15% with immediate effect. Further details are required to assess whether residential units within apartment blocks are excluded from this higher rate, as is the case under current law.
  • Initial public offering (IPO) expense deductibility — To support businesses in the scale-up phase of growth and development, a new measure providing relief for listing expenses is being proposed for successful listings completed on or after 01 January 2025. The relief will be in the form of a deduction for expenses incurred wholly and exclusively on a first IPO listing on a recognized stock exchange in Ireland/EU/European Economic Area and is subject to an overall expenses cap of €1m per listing.

Other key points

In addition to the above, and consistent with the Government's ongoing commitment to ensuring Ireland remains attractive for FDI with a tax code that is competitive and simplified in line with international best practice, the Minister announced:

  • Dividend and Branch Participation Exemptions — Work on the Participation Exemption for foreign-sourced dividends will continue in the coming year, including possible widening of the geographical scope of the exemption and the possibility of a foreign branch exemption.
  • Taxation of interest — The Minister noted the recent launch of a public consultation to address the taxation and deductibility of interest in Ireland. This consultation period will run for four months, ending on Thursday, 30 January 2025. (See EY Global Tax Alert, Irish Government publishes consultation on tax treatment of interest, dated 1 October 2024, for further detail in this regard.)
  • Funds sector — The publication of a report is expected shortly on a forward-looking review of the Funds sector, focused on maintaining Ireland's leading position in the investment funds and asset-management industry.
  • Share-based remuneration — Recommendations from a report on an independent review of share-based remuneration will be considered. The report considers possible changes to such schemes in light of their importance for competitiveness, exchequer cost and international comparisons. Once the Government formulates its proposals, a further Tax Alert will follow.

Next steps

The Finance Bill, which will contain more detailed information on the Budget announcements and other proposed tax changes, is scheduled to be published on 10 October.

* * * * * * * * * *

Endnotes

1 Modified Gross National Income or GNI* is a measure of the size of the Irish economy which excludes globalization activities that have a disproportionate impact on the results of the economy.

2 Parliamentary Budget Office Preliminary Review of Budget 2025, page 4.

3 Parliamentary Budget Office Preliminary Review of Budget 2025, page 4.

4 The 2024 surplus is based on expected tax receipts of €149b and expenditure of €125.3b; see Budget 2025 — Economic and Fiscal Outlook, page 26.

5 The 2025 surplus is based on expected tax receipts of €141b and expenditure of €131.3b; see Budget 2025 — Economic and Fiscal Outlook, page 26.

6 Statement by the Minister for Finance, Jack Chambers on Budget 2025.

7 The Budget in Brief — Your Guide to Budget 2025, page 7.

8 Central Bank of Ireland's Quarterly Bulletin, QB3, published September 2024, page 41.

9 Statement by the Minister for Finance, Jack Chambers, on Budget 2025.

* * * * * * * * * *
Contact Information

For additional information concerning this Alert, please contact:

Ernst & Young (Ireland), Dublin

Ernst & Young (Ireland), Financial Services, Dublin

Ernst & Young (Ireland), Cork

Ernst & Young (Ireland), Limerick

Ernst & Young (Ireland), Waterford

Ernst & Young (Ireland), Galway

Ernst & Young LLP (United States), Irish Tax Desk, New York

Ernst & Young LLP (United States), Irish Tax Desk, San Jose

Published by NTD’s Tax Technical Knowledge Services group; Carolyn Wright, legal editor
 
 

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