Budget 2026: FDI and corporate tax

Budget 2026: strengthening Ireland’s position as a global FDI hub

In the competitive landscape of global investment, Budget 2026 represented a strategic opportunity for Ireland to reinforce its attractiveness as a destination for foreign direct investment (FDI).

For decades, Ireland’s open economy has benefited significantly from FDI, particularly from large U.S. investments in the technology and pharmaceutical sectors. While this model has delivered substantial economic benefits, recent external developments have highlighted its vulnerabilities, particularly a disproportionate reliance on a narrow base of multinationals.

Shifting U.S. trade policies, rising global tariff pressures, and ongoing changes to the international tax landscape have placed Ireland’s fiscal model under closer scrutiny, have underscored the need for diversification and structural resilience.

While developing a robust indigenous sector remains a government priority – supported by the recently launched Action Plan on Competitiveness – Ireland must also ensure that its FDI policy continues to attract high-quality, long-term international investment.

Corporate tax: simplifying and modernising the regime

The Irish corporate tax regime has been subject to unprecedented changes over the past number of years to ensure Ireland’s alignment with the measures and actions set out under the OECD BEPS Action Plan, and the once-in-a-generation reform to the corporation tax system was introduced through Pillar Two legislation. While these measures have illustrated Ireland's continued proactive stance to curtail tax avoidance through significant international tax reform, it has resulted in Ireland’s corporate tax framework being increasingly complex, creating significant compliance costs and legal uncertainty for MNC Groups operating in Ireland.

Budget 2026 provided the Government with an opportunity to build on the participation exemption introduced in Budget 2025, to enhance clarity, reduce complexity, and increase Ireland’s appeal for long-term investment, all of which will support sustainable economic growth and reinforce Ireland’s status as a leading FDI destination.

While the Budget included certain positive changes to the incentives regime, and changes to the participation exemption (introduced in Budget 2025), we continue to await the anticipated radical reform of the interest regime.

The Minister confirming:

“On the theme of competitiveness, it is critical that our tax code is attractive to investment and is aligned with international best practice. Accordingly, I am publishing an Action Plan today to reform Ireland’s tax regime for interest.”

With regard to the R&D regime, while the Department of Finance commenced a consultation earlier this year to assess continuing relevance, cost and impact of the R&D regime, any significant changes to the regime have not been included as part of Budget 2026, with the Minister committing to publishing a Research and Development compass in the coming weeks, which “will consider targeted changes to the Research and Development Tax Credit to better align with industry practices, for example in the areas of outsourcing and qualifying expenditure definitions. It will also set a pathway for development of innovation supports.”

Incentives regime

Ireland’s R&D tax credit has long been a cornerstone of the country’s innovation and economic strategy, attracting multinational investment and supporting the growth of domestic enterprises.

However, in a time of significant changes to the global tax landscape, and to recognise the the increasing importance of digital transformation, artificial intelligence, software development and advanced analytics, the Department of Finance commenced a consultation earlier this year to assess the continued relevance, cost, impact, and efficiency of expenditure.

The Minister for Finance introduced several improvements to the R&D regime which included:

increasing the rate of the Credit from 30 per cent to 35 per cent.
increasing the first-year payment threshold from €75,000 to €87,500 to support smaller Research and Development projects.

In relation to the digital games sector and “to provide certainty to this sector and to encourage its continued growth”, the digital games tax credit has been extended for six years to 31 December 2031. In addition, the Credit will also allow for claims in respect of post release content work, where the original game availed of the digital games tax credit.

From an RSM standpoint, the changes to the R&D regime are welcome but more is needed, including a technology and digital innovation credit to reward practical innovation (improving processes, adopting new technology). This would encourage technology-focused innovation beyond traditional scientific R&D, supporting in particular technology transformation in SME businesses. Budget 2026 did not include any of these changes.

However the Minister for Finance has committed to “publishing a Research and Development compass in the coming weeks, which will consider targeted changes to the Research and Development Tax Credit to better align with industry practices, for example in the areas of outsourcing and qualifying expenditure definitions. It will also set a pathway for development of innovation supports.”

We therefore expect that Budget 2027 will bring the additional measures required to ensure the Irish regime continues to attract foreign investment and also bolster Irish domestic businesses.
The proposed changes to the digital games tax credit require approval under EU State Aid rules. They will be notified to the European Commission and introduced subject to commencement orders.

Interest regime

Ireland’s corporate tax framework has grown increasingly complex due to the EU’s Anti-Tax-Avoidance Directives (ATAD), particularly interest limitation rules. In previous budgets, the Minister for Finance announced a commitment to engaging with stakeholders on Ireland’s current regime for interest deductibility, noting its complexity, with a view to seeing a simplification to the regime. A formal consultation commenced in September 2024 with the consultation focusing on all aspects of the regime, including taxation of interest income, the deductibility of interest costs, and application of the interest limitation rules.

While we anticipated Budget 2026 would mark a first step towards the simplification of the interest regime, no changes were announced, with, the Minister for Finance instead committing to the issuance of a feedback statement in November 2025 to invite further consultation, with changes anticipated to be made as part of Budget 2027.

Participation exemption for foreign dividends and foreign branch exemption

The participation exemption, introduced in Budget 2025, represented a key step toward simplifying Ireland’s corporate tax system. However, there were limitations to the exemption that prevent its full operational effectiveness, such as the five-year look-back rule and restricted geographic scope.

Budget 2026 addressed some of the limitations with the Minister for Finance confirming that the legislation will be updated and enhanced by way of expanding the geographic scope of the exemption to include jurisdictions where non-refundable withholding taxes apply. A number of technical amendments will also be provided for to improve the operation of the relief, including confirmation that a shareholding should not be considered a “business” for the purposes of the provisions.

A key measure which was mentioned in Budget 2025, was the “the extension of the exemption to Branch Profits”, however, there was no mention of this measure as part of Budget 2026. This measure should be cost neutral and would align Ireland with international best practices, as the existing system is out of step with international best practice and cumbersome to administer for multinational businesses operating from Ireland. This would represent a non-controversial, revenue neutral and effective reform to simplify Ireland’s regime for cross border investment, and importantly, ensure greater alignment between the taxation of foreign branches and foreign subsidiaries.

Attracting talent to Ireland

The Minister for Finance acknowledged in his Budget speech “the important role that Foreign Direct Investment plays in our economy through the creation of employment and the expansion of business in Ireland.”

Irelands position as a global FDI hub predicated on the ability of large MNCs to attract senior executives, and retain highly skilled talent is always a key metric that is reviewed as part of any MNCs Global expansion. Attracting talent from overseas strengthens FDI investments and contributes positively to the talent pool of ‘Ireland’s Inc’ that is critical in continuing to drive economic success.

Housing

Constraints in the supply of housing has dominated political discourse in Ireland for almost a decade and has garnered unwelcome attention outside of Ireland, with US officials branding Ireland earlier in 2025 as suffering from “chronic infrastructure problems, a persistent housing crisis and a 'tedious' planning system".

The Government has taken steps to alleviate the housing supply constraint with a suite of targeted measures aimed at unlocking certain measures have been introduced to stimulate housing supply, which include among others, a reduced VAT rate (9%) applicable to the supply of new apartments, enhanced corporate tax deductions for apartment development, and costs associated with the conversion of non-residential properties, a new derelict property tax, and an extension of the residential stamp duty refund scheme.

These measures reflect a clear attempt to stimulate the delivery of residential units, regenerate existing building stock and encourage institutional investment in cost rental housing.

Employee incentives

While housing supply is a key factor to Budget 2026 included the following measures to strengthen key programmes to support mobility, innovation, and the retention of employees:

The Special Assignee Relief Programme (SARP) has been extended for a further five years, with an increase to the minimum income threshold to €125,000 from 2026. The Minister for Finance also advised that simplification of the administrative requirements in relation to the regime would be included as part of the Finance Bill
The Key Employee Engagement Programme (KEEP), which was due to expire at the end of 2025 and is seen as essential in helping smaller businesses incentivise key employees, is to be extended until the end of 2028.

However, the talent and employee regimes required more significant reform, than the measures introduced. In particular, the SARP regime, required additional measures, for instance removing the current cap for relief of €1m, and extending relief to USC and/or PRSI, to ensure it meets its objective of being a key tool in attracting senior executives to Ireland (especially considering the marginal tax rate for individuals in Ireland is one of the highest in the OECD).

End summary

James Burrows, a Corporate Tax Partner, who is part of the Life Sciences Industry Group comments that:

"Apart from the 5% increase in the R&D credit there was little for the life sciences sector to get excited about in Budget 2026. Whilst a message of certainty is welcome in these uncertain times it feels like the Government missed a chance to make brave changes to attract investment in this sector.”

A similar sentiment was shared by Seán McCarthy who co-leads the Technology Industry Group:

"For the Irish Technology Sector, Budget 2026 introduces certain positive measures, including an increase to the already attractive R&D credit, however bolder measures were required to have a significant lasting impact on the sector."

Paddy Stapleton, Head of Tax with RSM Ireland says,

“Budget 2026, as the government’s first post-election budget, certainly delivers welcome positive measures and strong continued investment across public services and infrastructure. However, more needs to be done to deliver meaningful support to encourage continued FDI investment and job creation, particularly given increased supply chain restructurings and external factors impacting capital flows.”