Capital Gains Tax rate reduction
See our Built Environment update:
Finance (No. 2) Bill 2026: Built Environment
R&D tax credit
The research and development (R&D) tax credit provides Irish businesses with a refundable corporation tax credit for qualifying expenditure on R&D activities. The Bill introduces the following enhancements to the R&D tax credit:
- The cap on expenditure on R&D that is outsourced to universities and unconnected parties will increase to the greater of:
- 20% of in-house expenditure, and
- €200,000.
This is up from 15% of in-house expenditure and €100,000.
- The maximum first-year refund will increase from €87,500 to €105,000.
- A company may now shelter some of its non-qualifying expenditure where its employee costs constitute qualifying R&D expenditure. In these circumstances, the company may treat 105% of those employee costs as qualifying R&D expenditure provided that the company’s non-qualifying expenditure equals or exceeds 5% of the qualifying R&D employee costs and that expenditure itself is wholly and exclusively for the purposes of the company’s trade.
- Companies can elect to use their first, second and third R&D refund instalments to reduce preliminary tax liabilities in subsequent periods. Previously this was only permitted for the first instalment.
The amendments apply to accounting periods ending on or after 23 December 2027.
These changes make the R&D tax credit more appealing, including for newer companies and companies seeking to outsource certain research activity. This should increase Ireland’s attractiveness as a hub for R&D activity and investment.
Knowledge Development Box
The Knowledge Development Box (KDB) regime provides for corporation tax relief on income from specific patents, copyrighted software and, for smaller companies, certain intellectual property. The KDB regime has been extended for another five years, to accounting periods beginning before 1 January 2032.
The Bill also introduces an election to allow existing KDB claimants to irrevocably opt out of the regime for specific trades or qualifying assets. The ability to make this election will only apply for the company’s first accounting period beginning during the 2027 calendar year. The election must be made within 24 months of the end of that accounting period.
Preliminary tax
The Bill provides additional flexibility in the preliminary tax rules for accounting periods commencing on or after 1 January 2027 by making the following changes:
- The ‘small company’ threshold increases from €200,000 to €350,000.
- A ‘top-up’ payment mechanism has been introduced for certain companies that have initially underpaid preliminary tax. A top-up payment is permitted where the amount of preliminary tax paid is at least 80% but less than 90% of the tax payable for the period. In these cases, the preliminary tax will be treated as being paid on time where a top-up payment is made within four months of the end of the accounting period and the payment brings the amount of preliminary tax paid up to 100% of current year liability. This applies to small and large companies.
- Payment thresholds for preliminary tax payments by large companies have been amended to be the lower of:
- 45% of its current-period tax, and
- 50% of its preceding accounting period tax charge.
These are practical changes that should reduce interest exposure arising from underpaid preliminary tax for Irish corporates.
Start-up company relief
Start-up company relief provides corporation tax relief for new start-up companies in their early years of trading. This relief has been extended to companies which begin a new qualifying trade before 31 December 2030.
Quoted preference shares
The Bill updates the definition of ‘preference shares’ in several sections across the Taxes Consolidation Act 1997 (TCA). These updates refer to comparable shares that are ‘admitted to trading on a regulated market in an EEA state’, rather than the previous references to comparable shares ‘quoted on a stock exchange in the State’. The updates are required because there are no comparable preference shares currently quoted in Ireland.
Conclusion
Businesses should review the measures introduced by Finance (No. 2) Bill 2026 carefully and assess their potential impact on their tax position and existing arrangements.
For more information and expert advice, contact our Tax team.
The content of this article is provided for information purposes only and does not constitute legal or other advice.