Ireland publishes Finance Bill 2025, increase rate of R&D tax credit

The 2025 Finance Bill introduces amendments covering VAT rates for hospitality and hairdressing, retirement savings, foreign dividend exemptions, and investment taxation, while updating various enterprise, property, and personal tax measures, including credits, levies, and incentives.

Ireland’s Minister for Finance, Paschal Donohoe, published the Finance Bill 2025 on 16 October 2025, following approval by the government earlier this week.

As announced on Budget Day, the Bill provides for amendments relating to the rate of VAT applying to the hospitality and hairdressing sectors; Automatic Enrolment Retirement Savings Scheme; Participation Exemption for Foreign Dividends; and the rates of taxation that apply to investments in Irish-domiciled funds and life assurance policies.

The Bill also provides for changes to existing measures to support enterprises and farming, individuals and households, as well as property-related measures. These include the Rent Tax Credit, VAT on the sale of apartments, Residential Zoned Land Tax, Benefit-in-Kind on motor vehicles, the Research and Development Tax Credit, and the Key Employee Engagement Programme. It also provides for amendments to certain Stamp Duty measures and an extension of the Bank Levy.

Changes to the Taxation of Investments

The Bill reduces the rates of taxation that apply to investments in Irish-domiciled funds and life assurance policies, other than those applying to companies, personal portfolio investment undertakings and personal portfolio life assurance policies. It also reduces the rates that apply to equivalent offshore funds and certain foreign life assurance policies. The rate applicable to the following taxes and forms of investment are being reduced from 41% to 38%: Investment Undertaking Tax; equivalent offshore investment funds (including Exchange Traded Funds (ETFs) that are subject to this regime); Life Assurance Exit Tax; certain foreign life assurance policies.

Mortgage Interest Tax Relief

The Finance Bill extends Mortgage Interest Tax Relief, on a tapered basis, for two further years, to 31 December 2026. Homeowners with an outstanding mortgage balance between EUR 80,000 and EUR 500,000 as of 31 December 2022 will be eligible. The relief will apply in respect of the increase in interest paid in 2025 over interest paid in 2022, as well as the increase in interest paid in 2026 over interest paid in 2022.

The current level of relief will be maintained for the increase in interest paid in 2025, with a maximum tax credit of EUR 1,250 per property available to claim from 2026. A reduced level of relief will apply for the increase in interest paid in 2026, with a maximum tax credit of EUR 625 per property available to claim from 2027.

VAT on Hospitality and Hairdressing Services

This measure provides for a reduced 9%VAT rate for food and catering services and hairdressing services, effective from 1 July 2026. This measure is aimed at supporting businesses and employment in these sectors and is in line with commitments made in the Programme for Government.

Research and Development (R&D) Tax Credit

The R&D tax credit currently provides a 30% tax credit for all qualifying R&D expenditure. Finance Bill 2025 provides for an increase in the rate of the R&D tax credit to 35% and an increase to the first-year payment threshold from EUR 75,000 to EUR 87,500. The first-year payment threshold is the amount up to which a claim can be paid in full in the first year, rather than paid in instalments over three years.

In recognition of the need to simplify the R&D regime, a new deeming provision is being introduced in relation to the amount of time an employee spends dedicated to qualifying R&D activities. Where companies can evidence that at least 95% of an R&D employee’s time is spent on qualifying R&D activities, then those emoluments are deemed to have been incurred wholly and exclusively in the carrying on of R&D activities.

Section 481 Film Tax Credit – Visual Effects (VFX)

The Section 481 Film Tax Credit provides relief in the form of a corporation tax credit related to the cost of production of certain films. The credit is granted at a rate of 32% on eligible expenditure of up to EUR 125 million per production. The Bill provides for an enhancement to the Section 481 Film Tax Credit to provide for a new 40% rate for productions with a minimum of EUR 1 million of eligible expenditure on relevant VFX work. This rate will be available on eligible expenditure up to a maximum of EUR 10 million.

Section 481A Digital Games Tax Credit – Credit Extension and Post Release Content

The Digital Games Tax Credit, commenced in 2022, takes the form of a corporation tax credit related to the cost of development of certain digital games. The credit available per digital game is 32% of up to EUR 25 million.

The Bill provides for an extension to the Tax Credit for a period of six years to 31 December 2031. In addition, the Bill provides for an enhancement to the credit to allow for claims in respect of Post-Release Content work, subject to certain conditions. Both amendments to the credit are subject to the approval of the European Commission.

Participation Exemption

A participation exemption for foreign dividends was introduced last year and the rules are being updated to enhance and extend the scope of the participation exemption to ensure that it remains competitive. Key updates include extending the geographic scope beyond the current scope of EEA and treaty partner jurisdictions, reducing the existing five-year look back period to three years, and other technical amendments and clarifications to improve the operation of the rules.

Foreign Earnings Deduction (FED)

FED is an Income Tax relief available to employees who are tax-resident in Ireland but who travel out of the State to temporarily carry out duties of their office or employment in certain qualifying countries. The Finance Bill extends FED for a further five years to 31 December 2030 and it also provides for additional amendments to the relief.

From 1 January 2026, the maximum amount of employment income that may qualify for Income Tax relief will be increased from EUR 35,000 to EUR 50,000. The relief will also be extended to apply in respect of qualifying time spent working in two additional countries: the Philippines and Türkiye.

The definition of a qualifying day will be amended to remove the requirement that three consecutive days must be spent working in a relevant country. It will also be provided that relief will only be available where the time working in a relevant country is reasonably required for the purposes of the performance of employment duties.

Capital Gains Tax (CGT) – Revised Entrepreneur Relief

The Bill amends CGT Revised Entrepreneur Relief. The relief applies a reduced CGT rate to chargeable gains arising on the disposal of chargeable business assets made by an individual on or after 1 January 2016. The current lifetime limit of EUR 1 million on which relief applies, is being increased in the Bill to EUR 1.5 million in respect of disposals made on or after 1 January 2026.

Disposals of chargeable business assets made on or after 1 January 2016 but on or before 31 December 2025 up to a value of EUR 1 million will be aggregated with disposals of such assets made on or after 1 January 2026 in applying the new lifetime limit.

New Exemption from the Stamp Duty on the Acquisition of Shares and Repeal of Existing Exemption

This section proposes to repeal section 86A of the SDCA 1999. Section 86A currently provides for an exemption from Stamp Duty on a conveyance or transfer of stocks or marketable admitted to trading on the Euronext Growth market operated by the Irish Stock Exchange plc trading as Euronext Dublin. The repeal is to take effect on 1 January 2026.

The section also proposes the insertion of a new section 86B in the SDCA 1999. The new section provides for an exemption from Stamp Duty on a conveyance or transfer of stocks or marketable securities of Irish registered companies where the securities are admitted to trading on a “relevant market” and the closing market capitalisation of the company that issued the securities was below EUR 1 billion on 1 December in the previous year.

The exemption will take effect from 1 January 2026.

Rent Tax Credit

The Finance Bill provides for the extension of the credit in its current form for a further three years to 31 December 2028, at a maximum value of EUR 1,000 for a single individual and EUR 2,000 for a jointly assessed couple.

VAT on Sale of Apartments

The Bill confirms the reduced 9% VAT rate on the sale of apartments, which was introduced with effect from midnight on Budget night by Financial Resolution. The measure supports wider policy goals to deliver more and higher density housing and will end on 31 December 2030.

Enhanced Corporation Tax Deduction for Apartment Construction Expenses

An enhanced corporation tax deduction of 125% of certain apartment construction costs is being introduced to help address viability challenges in constructing apartments, and to incentivise their development. The enhanced deduction will be subject to a cap of EUR 50,000 per apartment. This has the potential to deliver a cost saving of up to EUR 6,250 per unit.

The enhanced deduction will apply to projects commenced on or after 8 October 2025 and no later than 31 December 2030, with the relief claimable upon completion.

Extension and Amendment of the Residential Development Stamp Duty Refund Scheme

Finance Bill 2025 provides for the further extension of the residential development Stamp Duty refund scheme. The date by which projects wishing to avail of this scheme must commence construction is to be extended from 31 December 2025 to 31 December 2030. Introduced in 2017, the scheme provides for a refund of a portion of the Stamp Duty paid on the acquisition of non-residential land where that land is subsequently developed for residential purposes. The net minimum stamp duty payable after a refund is 2%.

As well as being extended by five years, a number of legislative changes are also being made to the scheme to enhance its effectiveness and to bring it more into line with current planning and housing policy. These include:

• Extending both time limits that apply to the scheme (acquisition to commencement, and commencement to completion) from 30 months to 36 months where an application for a Stamp Duty refund is made in respect of a Large-scale Residential Development.
• Allowing for a full Stamp Duty refund to be claimed in respect of a multi-phase development at the commencement of the first phase.
• Providing that where a repayment is claimed in respect of an entire phased development after it has been completed, the last commencement notice will be used for assessing compliance with the relevant timing condition.

Residential Zoned Land Tax

The RZLT became due and payable in 2025. It seeks to increase housing supply by encouraging the activation of development on lands which are suitably zoned and appropriately serviced. RZLT is an annual tax, calculated at 3% of the market value of the land in scope. Amendments included in Finance Bill 2025 will provide for a further opportunity for RZLT landowners to seek a change in zoning in 2026 to a zoning which reflects the economic activity they undertake on the land.

Accelerated Capital Allowances for Slurry Storage

The Finance Bill provides for the extension of Accelerated Capital Allowance for Slurry Storage for four more years to 31 December 2029.

Extension of the Young Trained Farmer (Stamp Duty) Relief

Section 81AA of the Stamp Duties Consolidation Act 1999 currently provides for a relief from Stamp Duty in respect of a conveyance or transfer of land to a young trained farmer executed on or before 31 December 2025. This section provides for a four-year extension of the relief so that it will apply to instruments executed on or before 31 December 2029.

Extension and Amendment of the (Stamp Duty) Farm Consolidation Relief

Farm consolidation (Stamp Duty) relief provides for a relief from Stamp Duty where, within a 24-month period, land holdings are consolidated by way of linked disposals of qualifying land and acquisitions of qualifying land.

The relief currently applies to instruments executed on or before 31 December 2025. This section provides for a four-year extension of the relief so that it will apply to instruments executed on or before 31 December 2029.

Both the extension and amendment of the relief will be subject to a commencement order. This is to ensure that the State aid compliance of both elements of this section can be confirmed with the European Commission before they come into effect.

Extension and Amendment of Farm Restructuring Capital Gain Tax (CGT) Relief

Farm Restructuring CGT relief is available when agricultural or farmland is sold, purchased or otherwise exchanged for the purpose of reducing the distance between holdings, and therefore making operations more efficient. This section provides for a four-year extension of the relief to 31 December 2029.

In addition, the relief is being extended to land used as commercial woodland, as well as non-commercial woodland which is used for conservation purposes. The extension of the duration of the relief, as well as the extension of the scope of the relief to include commercial and non-commercial woodland, are both subject to commencement to ensure State Aid compliance.

Accelerated Capital Allowances Schemes for Energy Efficient Equipment and for Gas Vehicles and Refuelling Equipment

To support businesses making capital investments which will help to deliver a reduction in emissions, the accelerated capital allowances schemes for both energy-efficient equipment and for gas vehicles and refuelling equipment are being extended, for a further five years until 31 December 2030.

Vehicle Benefit in Kind (BIK) – Original Market Value

The temporary universal relief applied to the Original Market Value of cars in categories A-D and vans is being extended on a tapered basis for three further years of assessment, to end on 31 December 2028. The relief will remain at EUR 10,000 for the 2026 year of assessment, reducing to EUR 5,000 for 2027 and EUR 2,500 for 2028. Tapering out the temporary relief will allow for continued support for employees, while incentivising the move to lower-emission employer-provided cars in the medium term. The lower limit in the highest mileage band is being permanently reduced from 52,001km to 48,001km from 1 January 2026.

Vehicle BIK – New Vehicle Category for Electric Vehicles

The tables used to calculate BIK liability on employer-provided cars are being amended to incorporate a new category for zero-emission cars commencing on 1 January 2026.

The new A1 vehicle category will apply significantly reduced BIK rates for electric vehicles, ranging from 6-15 per cent, depending on business mileage.

This change gives policy certainty to employers when it comes to planning long-term fleet investments and emphasises the government’s commitment to decarbonisation efforts.

Vehicle Registration Tax (VRT) – Extension of EUR 5,000 Relief for Electric Vehicles

The VRT relief for electric vehicles (EVs) is being extended by one year to 31 December 2026. EVs with an Open Market Selling Price (OMSP) of up to EUR 40,000 will continue to be granted VRT relief of up to EUR 5,000, and EVs with an OMSP of greater than EUR 40,000 but less than EUR 50,000 will receive a reduced level of relief. The transition to an electrified national fleet is central to government climate action policy, and the VRT relief is part of a wider suite of very generous measures to support the uptake of EVs.

Micro-generation of Electricity

The Finance Bill provides for the extension of the Income Tax disregard of EUR 400 for income received by households who sell electricity from micro-generation back to the grid for a further three years to 31 December 2028.

Tobacco Excise Tax

The Bill provides for the increase in excise duty on tobacco products, which was introduced with effect from midnight on Budget night by Financial Resolution. The increase amounts to 50 cents, inclusive of VAT, on a pack of 20 cigarettes in the most popular price category, together with pro rata increases for other tobacco products.

Extension of the VAT Reduction on Gas and Electricity

The Bill provides for the extension of the 9% reduced VAT rate for gas and electricity, which was introduced with effect from midnight on Budget night by Financial Resolution. The measure seeks to alleviate energy cost pressures for households and will end on 31 December 2030.

Extension of the Bank Levy

Finance Bill 2025 provides for a further 12-month extension of the Bank Levy so that it will continue to apply in 2026. The levy will be charged at a rate of 0.1025%  on an amount equal to the total value of relevant deposits held by the liable financial institutions on 31 December 2024.

Dividend Withholding Tax Exemption for Investment Limited Partnerships

A Dividend Withholding Tax Exemption for Investment Limited Partnerships and equivalent EU/EEA partnerships is being introduced in the Finance Bill 2025 to support opportunities for growth in the funds industry, specifically in the private assets space. This amendment is intended to increase the attractiveness of the Investment Limited Partnership as a fund structure and to help cement our position as a desirable location for regulated investment funds.

To avail of the exemption, an Investment Limited Partnership or equivalent EU/EEA partnership must be beneficially entitled to not less than 51% of the ordinary share capital of the Irish company making the distribution.

The exemption is to apply in respect of distributions made on or after 1 January 2026.

Earlier, Ireland’s Department of Finance released the Budget 2026 on 7 October 2025, introducing tax measures related to VAT, housing measures and personal income tax.