23/10/2026
Briefing

The Finance (No. 2) Bill 2026 (“the Bill”) contains a number of simplifications and enhancements to the Irish tax system, which we examine in this briefing.

Key takeaways

  • A 2% reduction in the capital gains tax rate is designed to help increase and expand domestic investment activity
  • Taxpayers should review the simplified taxation of interest and Pillar Two safe harbours for potential impacts on compliance and tax planning
  • Companies undertaking qualifying R&D should consider how enhancements to the R&D Tax Credit could affect available relief
  • Individual investors should consider the new Individual Investment Account and whether it offers relevant investment opportunities

Business taxation

Capital Gains Tax (“CGT”) reduction

One of the key tax measures contained in the Bill is the reduction in the rate of CGT from 33% to 31% for assets disposed of on or after 7 October 2026. This is the first reduction in many years, and is a welcome signal, albeit not as large a reduction as stakeholders had called for.  

The rate reduction does not apply to the disposal of development land, which will remain subject to the 33% rate.

Enhancements to the Research & Development (“R&D”) Tax Credit

The R&D Tax Credit currently provides a 35% tax credit for qualifying expenditure incurred in the carrying on of research and development activities undertaken to resolve a scientific or technological uncertainty.

Following the review of the R&D Tax Credit undertaken last year and in line with the Research & Development Tax Credit and Innovation Compass, a number of enhancements to the R&D Tax Credit were introduced in the Bill. These amendments will apply in respect of any accounting period the specified return date of which is on or after 23 September 2028 unless otherwise stated.

  • The provisions allowing the R&D Tax Credit to be claimed on subcontracted activities to third-level institutions in the EEA or to unconnected third parties worldwide have been improved for accounting periods ending on or after 23 December 2027. The subcontracting limits are being increased to 20% of qualifying in-house R&D expenditure or €200,000, from the existing cap of 15% of in-house R&D expenditure or €100,000.
  • The first-year payment threshold is increased from €87,500 to €105,000 to provide a cash flow benefit for smaller R&D projects and encourage more companies to engage with the regime
  • In a further bid to provide a cash flow benefit, a change is made to improve the recognition of the R&D Tax Credit for the purposes of preliminary corporation tax, which will provide a cash flow benefit to companies where the credit is offset against tax liabilities
  • A new provision allows claimant companies to increase their qualifying cost base by 5% of qualifying R&D wage costs, subject to the company having incurred a sufficient level of expenditure. This will be effective from the date the Bill is enacted into law, so at the end of December 2026.
  • An amendment will be introduced at committee stage to provide that, when a clinical trial is regulated, it may be used to satisfy the science test. This is to recognise R&D work undertaken by Irish companies as part of global trials and to reduce the administrative burden.

Knowledge Development Box (“KDB”)

KDB relief is extended to 1 January 2032 with an option for existing claimant companies to elect out of the KDB regime. Although optional, the election is irrevocable and will be available for one accounting period only. Existing claimants may elect out of their first accounting period beginning in 2027 with the election due within 24 months of the end of the accounting period.

Extension of key reliefs

The Bill extends the tax relief for start-up companies under section 486C of the TCA 1997 to start-up companies which commence a new trade between 1 January 2027 and 31 December 2030.

The extension of the key reliefs was announced in the budget; however, the legislative text will be included at a later committee stage. The reliefs are the Employment Investment Incentive (“EII“), the Start-Up Capital Incentive (“SCI“), the Start-Up Relief for Entrepreneurs (“SURE“) and the Angel Investor Relief.

Targeted simplification of the taxation of interest in Ireland

The Bill makes targeted simplifications to the taxation regime for interest in Ireland. Many of these changes were flagged as part of the broader consultation on the modernisation and simplification of the taxation of interest in Ireland. The consultation on this is still ongoing and it is hoped that comprehensive measures can be included in next year’s Finance Bill.

Change to the “Defray money applied” requirement

The requirement that the loan must be used to “defray money applied” for a qualifying purpose has been changed to require that the loan amount be used for a qualifying purpose. The concept led to many practical difficulties, so the change is welcome. This change will apply to new loans made on or after 1 January 2027.

Removal of Common Director requirement

The requirement that the boards of the investing and investee companies must have a common director has been removed. This change will apply to new and existing loans for accounting periods commencing on or after 1 January 2027.

Exclusion of foreign entities substantially similar to Irish partnerships

Foreign bodies corporate that have characteristics and rights and obligations of members substantially similar to Irish partnerships are excluded from the meaning of company for the purposes of sections 247 and 249 TCA.

Changes to first use of the loan

For loans made on or after 1 January 2027, interest relief will only be restricted during periods where the accrual of interest occurs when the loan is not being applied to a qualifying purpose, with apportionment allowed when the loan is first used for a non-qualifying purpose followed by a qualifying purpose (with a currency swap not constituting a non-qualifying purpose).  

Easing of restriction on intra-group loans to acquire group assets

The restriction on relief for interest on intra-group loans for the purpose of acquiring assets from a group entity is relaxed to align with the carve-out for Section 840A TCA. The restriction will no longer apply where the only business of the company is on-lending funds borrowed from unconnected parties (other than holding shares in the investing companies).  This relief applies to the acquisition of assets on or after 1 January 2024.

Transfer pricing for companies outside the scope of Irish corporation tax

Where an amount is on-lent to a company outside the scope of Irish corporation tax, interest relief can now apply if that loan arrangement is subject to Irish transfer pricing rules.

Expansion of exclusions from recovery of capital rules

The exclusion from recovery of capital anti-avoidance rules is being expanded to ensure that the recovery of capital rules will not apply where the company concerned, the investing company or an intermediate holding company uses the amount recovered to make a ‘new investment’ (i.e. a new qualifying investment within 6 months) or where the investing company repays the loan or any loan to which section 247 applies.

The legislation is also amended to ensure that where a transaction gives rise to multiple recoveries of capital, these can be allocated across the relevant loans and the aggregate amount treated as recovered is limited to the total amount of the capital recovered, or deemed to be recovered, in respect of the transaction. Notification of allocation must be made to Revenue.

Apart from where otherwise stated, these changes apply for accounting periods commencing on or after 1 January 2027.

Procedural improvements to Interest Limitation

The Bill extends various election deadlines from the filing deadline for the tax return to two years after the end of the accounting period. The extension applies to elections to join or leave an interest group and to the group and equity ratio elections. 

Pillar Two

The Bill formally legislates for the OECD Side-by-Side Package, agreed in January of this year.

The legislation provides for the following safe harbours to be applicable from 1 January 2026:

  • the Side-by-Side Safe Harbour, which essentially excludes U.S.-headquartered groups from the extraterritorial taxes of Pillar Two
  • the Substance-based Tax Incentive Safe Harbour
  • the Ultimate Parent Entity Safe Harbour (noting that the review process is not complete, and no jurisdictions are currently on the OECD register of eligible jurisdictions)

The legislation also provides for:

  • The extension of the existing Transitional Country-by-Country Reporting Safe Harbour to apply to fiscal years beginning on or before 31 December 2027 (but not including a fiscal year that ends after 30 June 2029)
  • the Simplified Effective Tax Rate Safe Harbour to be applicable for fiscal years beginning on or after 31 December 2026

The Bill legislates for amendments and clarifications contained in the May and September OECD Administrative Guidance relating to:

  • The application of the transitional UTPR safe harbour to groups with 52-week and 53-week fiscal years
  • Legislating for the exclusion of explicitly conditional taxes from covered taxes including the definition of what such taxes are. Further OECD Guidance is expected before the end of the year on this.
  • Clarification on the application of the local financial accounting standards for qualified domestic top-up tax safe harbour calculations in line with the OECD September Administrative Guidance

The Bill makes some technical amendments to penalty relief, including the introduction of a cap on the penalty applicable for failure to file a return. This applies both where a designated local entity has not been appointed and where one has been appointed, in which case, only one return / notification is deemed to be late.

Update to list of non-cooperative jurisdictions

The annual update to the list of non-cooperative jurisdictions was made such that for accounting periods beginning on or after 1 January 2027, the relevant list is that approved by the Council of the European Union on 6 March 2026.

The reference is relevant for the application of various anti-avoidance measures contained in the CFC rules, outbound payment measures and rules relating to the participation exemption for certain foreign dividends.

The list is updated twice a year by the Council of the European Union; however, the list applicable for the TCA is only updated once per year, so they are not always aligned.

Double Taxation Agreements

The Bill updates the list of international tax agreements entered into by Ireland to include a new Double Taxation Agreement with the Principality of Liechtenstein and a Protocol to the existing Double Taxation Agreement with Sweden.

The amendments form part of the legislative process for giving these international agreements the force of law in Ireland.

Amended assessment relating to an advance pricing agreement

The Bill legislates for amended assessments arising from advance pricing agreements (“APAs”) concluded between the Irish competent authority and the competent authority of another jurisdiction. Where an assessment is amended to give effect to an APA, any additional tax arising will be due and payable not later than one month from the date of amendment.

Preliminary tax simplification 

The Bill provides for a number of administrative changes to preliminary corporation tax to reduce uncertainty and improve flexibility. These include raising the threshold for small companies from €200,000 to €350,000 and easing the requirements for large companies to meet their preliminary tax payment obligations and not incur interest, with the introduction of a new top-up mechanism subject to certain conditions. 

Financial services

Introduction of the Individual Investment Account

Following the announcement in Budget 2027, the details of the new Individual Investment Account (“IIA“) were set out in the Bill.

The IIA is a new tax-efficient investment account, which is expected to be available from July 2027, allowing Irish residents to invest up to €12,000 annually with a €50,000 tax-free threshold. The initiative aims to encourage retail investment by eliminating complex tax rules like deemed disposal and replacing them with a simplified 1% annual tax on amounts exceeding the threshold.

For more details on the IIA, please see our in-depth briefing. 

Other retail investment changes

From 1 January 2027 there will be a reduction in the rate of tax that applies to investors from 38% to 35% on income and gains from Irish-domiciled investment funds and equivalent offshore investment funds and domestic life assurance policies and certain foreign life policies.

The Bill introduces a new simplified standalone regime dealing with the taxation of Irish-resident investors in investment undertakings whose units are held in a recognised clearing system (namely ETFs).  

  • The Irish-resident investor will no longer be taxed by reference to the equivalent offshore fund provisions
  • The tax will continue to be self-assessed and loss restrictions will continue to apply as part of the new regime. The 35% individual rate, 25% corporate rate, and 60% personal portfolio investment undertaking rate will continue to apply.

While it is welcome that the more cumbersome existing rules taxing Irish-resident investors by reference to the equivalent offshore fund provisions will cease to apply, there remains no change to the eight-year deemed disposal rule at this time. The Minister for Finance published the Government’s Roadmap for the Taxation of Retail Investment on 31 August 2026 which commits to examining the simplification of the current retail investment tax framework.

Employment

Easing of real-time employer Enhanced Reporting Requirements

From 1 January 2027, employers will have the option of continuing to report information required under the Enhanced Reporting Requirements on or before certain tax-free payments are made or, alternatively, reporting such information by a later date. This date was referenced in Budget materials as the 14th day of the month following the income tax month in which the reportable benefit is provided to the employee; however, the Bill stipulates that the date will be specified in updated Income Tax (Employments) Regulations with effect from 1 January 2027.

Termination payments & pensions

The Bill expands the definition of the Relevant Capital Sum, which is used to calculate tax relief on termination payments under the Increased Basic Exemption and the Standard Capital Superannuation Benefit (“SCSB“). It will now also apply to “relevant pension arrangements”, including PRSAs, Pan-European Pension Products (“PEPPs“), the MyFuture Fund under pension auto-enrolment, and certain foreign pension plans where Migrant Member Relief has been claimed.

Previously, individuals with the “relevant pension arrangements” did not have to deduct the present value of a future tax-free pension lump sum when calculating relief. By contrast, members of occupational pension schemes had to make this deduction, unless they signed a formal waiver on or before the termination date. The Bill now requires the same deduction for “relevant pension arrangements”.

The option to waive the future lump sum is still available and must now be exercised at the date of termination or change to which the termination payment relates, rather than in advance. The change will take effect from 1 January 2027.  

Professional Services Withholding Tax

Budget 2027 announced the reform of Professional Services Withholding Tax by replacing the existing flat 20% withholding rate with personalised deduction rates. Legislative changes will also allow self-employed taxpayers to opt into the real-time exchange of information with Revenue, with a view to reducing their administrative burden. The measures follow the public consultation announced as part of Budget 2026 and will be subject to a Commencement Order. The legislative provisions will be included at the later committee stage of the Bill.

Real estate and housing

Residential Zoned Land Tax (“RZLT”)

Section 653I TCA 1997 on RZLT is amended to provide a further opportunity for owners of land included on the revised map to be published by 31 January 2027 to request rezoning.

Section 653IA is also amended to provide an exemption from 2027 RZLT where such a request is made, subject to restrictions where the land is the subject of a current planning application or extant planning permission for residential development.

New Derelict Property Tax (“DPT”)

As announced in the Budget speech, the Bill legislates for DPT, aimed at encouraging the use and regeneration of derelict residential and commercial property.

DPT will apply annually at 7% of the market value of property within scope, subject to specified exclusions, including certain monuments, properties under construction and properties affected by defective concrete blocks.

The tax will be introduced on a phased basis, initially applying to towns with a population of 4,000 or more, before extending to towns with 2,000 or more inhabitants from the second year.

Local authorities will identify properties within scope through annual registers, with the first preliminary register to be published on 1 September 2027 and the first final register on 28 February 2028.

Property owners may make submissions, appeal against inclusion, and seek removal following remediation.

DPT will operate on a self-assessment basis, with the first pay and file deadline being 23 June 2028. Deferral may be available in certain circumstances, including following a change of ownership, during remediation works and while certain proceedings are ongoing. Failure to comply may result in interest, penalties and, in cases of significant undervaluation, a surcharge of up to 30%.

VAT modernisation

The Bill makes several amendments to give effect to the VAT Modernisation measures in line with the EU VAT in the Digital Age (“ViDA“) Directive.

Next steps

Further insertions and amendments are expected over the coming weeks at committee stage. The Bill will be enacted before the end of the year.

While we welcome the targetted simplifications and improvements contained in this Bill, we will continue to engage with the Department of Finance on necessary reforms to improve Ireland’s competitiveness.

For more information, please contact a member of our Tax Group.