Finance Bill 2025 – Employment Taxes

The Finance Bill contains several updates to employment related tax reliefs, as well as amending legislation regarding Auto-Enrolment Retirement Savings Schemes. Our Tax team considers the key changes.

Foreign Earnings Deduction

The Foreign Earnings Deduction (FED), first introduced in 2012, is designed to support Irish businesses expanding into emerging markets by offering income tax relief to employees who travel abroad to certain countries for work.

The FED provides tax relief to Irish tax resident employees who temporarily travel to certain countries to carry out duties related to their employment. The amount of relief available is based on the number of qualifying days the employee spends working in these particular countries.

Originally set to expire at the end of 2025, the Finance Bill confirms that the FED will be extended by five years, until 31 December 2030. Also, effective from 1 January 2026:

• The maximum amount of qualifying employment income will increase from €35,000 to €50,000, and
• The Philippines and Türkiye will be added to the list of qualifying countries

In addition, the requirement for employees to spend three consecutive days working in a qualifying country in order to qualify for the FED has been removed, which is a welcome change. Employers should note that the Finance Bill also provides that FED relief will not be available where an employee chooses to spend time working in a qualifying country for personal reasons.

These changes are a positive development and should continue to act as an incentive for Irish businesses to explore opportunities in emerging international markets.

Special Assignee Relief Programme

The Special Assignee Relief Programme (SARP) is an income tax relief that is available to certain employees assigned by foreign employers to work in Ireland. It is intended to assist employers in relocating skilled professionals to Ireland, with a view to supporting the development and expansion of businesses in Ireland. A recent review by the Department of Finance confirmed that the SARP has positively contributed to the Irish economy by facilitating investment in Ireland.

The SARP operates by exempting a portion of a qualifying employee’s earnings from Irish income tax. The relief available is currently 30% of an employee’s income over €100,000, subject to an upper cap of €1 million.

The Finance Bill amends the SARP as follows:

• It extends it for a further five years to 31 December 2030.
• From 1 January 2026, the minimum income required to avail of the relief will increase from €100,000 to €125,000.
• The deadline for the annual employer SARP return is extended from 23 February to 30 June following the end of the relevant tax year. This applies to the 2025 tax year and all subsequent years.
• To qualify for the SARP, employers are obliged to notify Revenue within 90 days of the relevant employee’s arrival in Ireland. A failure to meet this deadline can result in a denial of SARP relief, which was seen as quite punitive. However, the Finance Bill has introduced a new administrative relief whereby employees can still qualify for the SARP where their employer notifies Revenue after 90 days but within 180 days of the employee’s arrival in Ireland. In that case, the SARP relief will be restricted to four tax years, meaning the employee essentially will lose the first year of relief.

The administrative changes will be welcomed by employers. The extension of the relief means that SARP will remain a valuable benefit in supporting the relocation of skilled employees to Ireland. However, the increase in the minimum income required to qualify for the relief will serve to exclude some employees who would have qualified for the SARP in prior years.

KEEP

The Key Employee Engagement Programme (KEEP) is a tax-advantaged share option scheme aimed at SMEs. Under current rules, the scheme applies only to share options granted on or before 31 December 2025.

The Finance Bill confirms the extension of the scheme up to 31 December 2028. This extension is however subject to a commencement order, as the measure is subject to State Aid rules and must be approved by the European Commission prior to commencement.

Other than a minor technical amendment, no other changes were made to the scheme. Although the extension of the scheme to 2028 is welcome, it is disappointing that the qualifying conditions attaching to the scheme have not been simplified. Such a move could increase uptake in the scheme, which has been low to date.

Company provided vehicles

The Finance Bill includes several changes to the benefit-in-kind (BIK) regime for company vehicles, as follows:

• The universal reduction to the Original Market Value of certain company vehicles, which was introduced on a temporary basis in 2023, is being extended on a tapered basis for three years ending 31 December 2028. The relief will remain at €10,000 for 2026, reducing to €5,000 for 2027, and €2,500 for 2028. The relief is expected to be abolished from 2029.
• A new category (A1) for zero-emission cars will be introduced from 1 January 2026, with a consequential amendment made to the current A category. Employer provided cars that fall within the A1 category will benefit from the lowest BIK rates of between 6-15%, depending on business mileage.
• The lower limit in the highest mileage band will be permanently reduced from 52,001km to 48,001km from 1 January 2026.

These updates reflect ongoing efforts to encourage the use of more sustainable vehicles while providing continued tax relief to employers and employees using company cars.

Pensions

The Department for Social Protection has confirmed that the Automatic Enrolment Retirement Savings Scheme (Auto-enrolment) will be introduced on 1 January 2026. For further detail on this scheme, see our Auto-enrolment article.

The Finance Bill inserts a revised version of previously published, but not commenced, legislation which sets out the tax rules for Auto-enrolment. The key features of the tax provisions include clarifications that:

• Employer contributions to Auto-enrolment will be exempt from tax and will qualify for corporation tax deduction
• Income and gains of Auto-enrolment funds while held by an Auto-enrolment provider will be exempt from tax, and
• Amounts paid from an Auto-enrolment fund, after any tax-free lump sum, will be taxed

The Finance Bill also includes new provisions which deal with the tax treatment of Auto-enrolment retirement savings on the death of the participant. The relevant tax exemptions which apply to inheritances from Approved Retirement Funds (ARFs) will also apply in the case of Auto-enrolment funds. Additionally, it contains provisions which ensure that the tax exemptions for the income and gains of Auto-enrolment funds apply across all relevant Auto-enrolment fund structures including the National Automatic Enrolment Retirement Savings Authority.

While the Auto-enrolment updates included in the Finance Bill are helpful, we would welcome further clarification as to the scope of Auto-enrolment in certain scenarios, particularly concerning, for example:

• Foreign employees working on temporary assignment in Ireland
• Non-resident employees of Irish companies working overseas, and
• Irish employees who perform only a portion of their duties in Ireland

Other Finance Bill 2025 insights

The content of this article is provided for information purposes only and does not constitute legal or other advice.