Budget 2025 needs to focus on the Irish economy’s key competitive challenges, including the need to attract, support and scale more Irish and foreign businesses, the rising cost of employment, international competition for talent and the availability of affordable housing. Our pre-budget submission sets out a range of tax policy proposals designed to address these challenges.
Simplifying the tax code
Ireland is facing a rapidly changing global tax environment and the outcome of the US elections could significantly impact this environment and Ireland’s attractiveness as an investment location. US tax measures designed to lower the US corporate tax rate to one more comparable with OECD peers and to protect the US tax base are scheduled to expire at the end of 2025.
Amidst this ongoing uncertainty, Ireland has a unique chance to present itself as a stable and secure destination for FDI. Therefore, it is vital that the opportunity is taken in Budget 2025 to introduce measures that will strengthen Ireland’s competitive edge and attractiveness for inward investment.
Ireland needs a broad and flexible participation regime that will support it as an international holding company location. We have called for the introduction of a participation exemption for foreign dividends to compliment the participation exemption in place for capital gains. A branch exemption should also be introduced. These are features of tax systems in many countries and need to be introduced as soon as possible.
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Simplification of the tax code needs to be a priority in Budget 2025 to support enterprise and entrepreneurship. In the KPMG Enterprise Barometer 2024, our research showed that six in ten domestic businesses and entrepreneurs are concerned about the administrative complexity associated with the Irish tax system, particularly for smaller enterprises and entrepreneurs.
Our pre-budget submission calls for the establishment of an Office for Tax Simplification to review the tax code, remove duplication and simplify the system. By doing so, we can drive reform of overly complex tax rules that are adding to the cost of doing business and compromising competitiveness. This is particularly important now that the 12.5 per cent corporation tax rate is less of a competitive advantage.
Stimulating investments in SMEs
SMEs employ more than 1.2 million people and are critical to our economic success. They need access to capital and talent to develop and grow their businesses. Enhancements to the Key Employee Engagement Programme (Keep) and the Special Assignee Relief Programme (Sarp), as well as introducing a super deduction for payroll costs of highly skilled technology workers, would help level the playing field for SMEs competing with multinational corporations in a tight labour market.
Budget 2025 could also incentivise investment in SMEs by simplifying the Employment Investment Incentive Scheme (EIIS) and enhancing Capital Gains Tax (CGT) Entrepreneur’s Relief.
It is also critical to reverse the changes made to the CGT Retirement Relief in the last Finance Act. The availability of CGT retirement relief is vital to the development of multi-generational family-owned businesses and farms. These businesses and farms are the bedrock of the Irish economy, employing millions. Last year’s changes will operate as a barrier to the transfer of Irish businesses and farms to the next generation.
Reducing the cost of employment
Notwithstanding employment levels hitting 2.75 million, the high cost of employment in Ireland has become a real issue of concern for domestic businesses and foreign investors. Budget 2025 should introduce measures to reduce the cost of employment. Ireland needs a personal tax regime that attracts and retains skilled individuals. This is important for both Irish businesses and foreign-owned companies assessing Ireland as an investment location.
The entry point to Ireland’s marginal income tax rate is uncompetitive compared to many other jurisdictions, making it difficult to attract talent and highly skilled workers. We recommend raising the point at which the marginal rate applies to €50,000. We also recommend the introduction of an earnings cap of €75,000 on employee PRSI and €100,000 on Employer PRSI, similar to social security caps in other countries. This would increase workers’ take-home pay, help employers to manage employment costs, and support businesses growing and developing talent.
Tackling the housing crisis
In addition to the obvious societal challenges, the housing crisis is adversely impacting Ireland’s attractiveness for investment. According to new data from the Central Statistics Office, 69,000 people emigrated from the Republic of Ireland in the 12 months to April 2024, the highest level of emigration since 2015. And whilst there were also significant inflows, this is a missed opportunity to keep talented people in the Irish labour market.
There are a range of budgetary measures that could be introduced to increase the housing supply, including incentivising employers to build and provide residential accommodation to employees with a corresponding BIK exemption for employees earning less than €50,000. The reintroduction of a targeted and controlled form of Section 23 relief could also encourage the conversion of properties above retail units to residential use and encourage individuals to finance the development of new residential units for letting.
Green technology
Ireland has set itself ambitious climate goals which will undoubtedly present challenges and opportunities for individuals, communities and businesses. Tax policy could be used as an effective tool to encourage innovation in green technologies to help us meet these targets.
In short, the Government has several challenges to address, but strong exchequer returns, including last month, should put the Government in a good position to deliver on a budgetary package of €1.8 billion in additional spending and €1.4 billion in tax measures as set out in the Summer Economic Statement.
To get more tax insights for you and your business visit kpmg.com/ie