Plan to make foreign dividends tax exempt

Finance Minister Michael McGrath has published a roadmap for the introduction of a participation exemption to Irish corporation tax.

Ibec said Government plans to introduce a participation exemption for dividends brings Ireland in line with other jurisdictions.

The business group's chief economist, Gerard Brady, said the announcement is a positive development in a move toward simplifying Ireland’s increasingly complex tax system.

Finance Minister Michael McGrath published a roadmap for the introduction of a participation exemption to Irish corporation tax. 

It sets out a timeline for the introduction of a participation exemption for dividends.

It will allow dividends from foreign subsidiaries to be exempt from tax when counted as income for Irish firms. 

Ireland remains the only country in the EU without a participation exemption on dividends.

"Ireland is committed to ensuring that our corporation tax code is competitive and attractive to business investment while maintaining consistency with international best practices," Mr McGrath said. 

"The corporation tax landscape globally has been undergoing a concentrated period of change in recent years, largely arising from the outputs of the OECD[Organisation for Economic Co-operation and Development]/G20 project on base erosion and profit shifting."

In October 2021, Ireland was one of almost 140 jurisdictions to sign up to the OECD's “two pillar solution to address the tax challenges arising from the digitalisation of the economy”. 

Mr McGrath said: "This has been described as a once-in-a-generation agreement and the capstone to the process of international tax reform that began over a decade ago."

He said the introduction of a participation exemption for foreign dividends to Ireland’s tax regime will provide much-needed administrative simplification and greater certainty for businesses while continuing to ensure a robust and effective tax system. 

"It will be a significant change to Irish corporation tax; a change which, I believe, will support Ireland’s competitiveness in the years to come," he said.

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Mr Brady said the commitment to introduce the changes from 2025 onwards was positive but it was a missed opportunity that these changes will not be introduced in the upcoming finance bill, to coincide with the adoption of the new EU minimum tax directive. 

"These changes first came under discussion in the Coffey review of Ireland’s corporate tax system in 2017. 

"In recent years, all barriers to their change have been removed and the business community has engaged intensively regarding the details of implementation," he said.

“Implementing the OECD agreements on corporate tax will reduce the rate differential for Ireland’s corporate tax regime from 2024 onwards. 

"Given the scale of employment generated and tax paid in the country, by both inbound multinational enterprises and Irish headquartered companies, it is crucial that businesses hear a clear message over the coming months on Ireland’s commitment to competitiveness in other elements of the regime, including the simplification of an increasingly administratively complex tax system.”