Budget 2025 insights with Irish Tax Monitor: Part two

Irish SMEs: Simplifying tax reliefs and compliance for small businesses

Tax partner Claire Healy outlines how Budget 2025 could support Irish SMEs by simplifying tax reliefs and compliance, enhancing access to key funding schemes, easing employee retention efforts, and reconsidering measures that could impact business transfers and growth. 

SMEs and private business, which play a vital role in our economy, are facing extreme pressure due to rising costs, increasing tax compliance burdens, and difficulties in attracting and retaining key employees. Budget 2025 presents an opportunity to provide much-needed relief to nurture indigenous Irish businesses. Key regimes such as the R&D tax credit and the Employment Investment Incentive Scheme (EIIS), which are crucial for providing access to funds, need to be simplified to improve accessibility for these businesses. In terms of employee attraction and retention, the Key Employee Engagement Programme (KEEP) is an effective tool for offering tax savings and encouraging employee participation and loyalty. Simplifying this scheme could further enhance its benefits.

Supporting entrepreneurship within these businesses is essential. Starting from 1 January 2025, the significant changes to CGT retirement relief announced in Budget 2024 will take effect, including a €10 million market value limit on qualifying assets for individuals aged between 55 and 65 (currently unlimited relief). These changes could hinder inter-generational transfers, as business owners of valuable family businesses may be discouraged from transferring ownership during their lifetime to avoid CGT, opting instead to transfer upon death. This could limit younger family members' involvement in the business, stifling growth and negatively impacting employment creation. It is hoped that Budget 2025 will reconsider or pause this measure.

The new Enhanced Reporting Requirements (ERR), effective from 1 January 2024, require employers to report all employee benefits on a real-time basis, significantly increasing compliance burdens, especially for small businesses. While there is an annual small benefit exemption of €1,000 covering up to two benefits, we propose that this exemption should be repositioned as a cumulative annual amount for each employee, regardless of the number of small benefits received (e.g., staff drinks). This adjustment would considerably ease the compliance burden on employers.

Enhancing Ireland’s FDI Appeal: Key Measures and Opportunities in Budget 2025

Tax partner Claire Healy explains how Budget 2025 has the opportunity to enhance Ireland’s FDI appeal by simplifying tax incentives, addressing talent and housing challenges and expanding R&D tax credits, making Ireland more competitive in the global market beyond its corporate tax rate.

Foreign Direct Investment (FDI) is a key driver of the Irish economy. With the introduction of the Pillar 2 minimum tax for multinational enterprises in last year’s budget, effective for accounting periods starting after 31 December 2024, Ireland must enhance its attractiveness for foreign investors beyond its well-known corporate tax rate.

 The competition to attract and retain FDI is more intense now than it was a decade or two ago. While Ireland has a strong reputation for providing a stable and business-friendly environment, recent challenges impacting FDI have emerged, including difficulties in recruiting and retaining talent, employee housing issues, and rising employment costs. To address these concerns, extending the Special Assignee Relief Programme (SARP) and implementing measures to reduce the personal income tax burden—such as increasing the marginal rate band and lowering the higher tax rate—could send positive signals to investors. Additionally, decisions related to domestic issues, such as housing and the high cost of living, will be closely watched by foreign investors.

Enhancing Ireland’s R&D tax credit offering is another way to attract and retain foreign investors. The current R&D tax credit regime is complex and underutilised. Simplifying access to the R&D tax credit and broadening its benefits, particularly to target new companies in emerging fields like AI and the green transition, could raise Ireland’s profile in the global market.

In the financial services sector, the tax landscape in Ireland is generally favourable, and no significant changes to the overall tax regime are expected, apart from potential adjustments to the funds regime.

 Other pre-Budget observations

Among other key areas, this budget is expected to address the ongoing review of interest deductibility provisions for corporation tax purposes. The current regime is complex, and there is potential for reform as part of broader efforts to simplify Ireland’s tax system.

Climate change remains a significant concern, and we anticipate the introduction of additional measures to support the green transition of the economy. These could include incentives aimed at enhancing resilience to climate change, such as tax credits for decarbonisation initiatives and solar energy projects. 

Read part 1 of our Irish Tax Monitor article on Budget 2025 insights. Download full article.