Finance Bill 2025 – Impact for Financial Services

Executive Summary

The Finance Bill 2025 (or “the Bill) introduces several key changes impacting the Financial Services sector, including updates to the dividend participation exemptions, investment taxation, Pillar 2 updates, and VAT reporting. This alert summarises the most relevant measures and provides practical insights for financial services businesses operating in Ireland.

[All section references below are to the Taxes Consolidation Act 1997 unless otherwise stated.]

1. Participation Exemption – Dividends

Finance Act 2024 introduced a participation exemption for foreign dividends received on or after 1 January 2025 from subsidiaries in EU/EEA and double tax treaty partner jurisdictions. Last year the Minister announced that further consideration would be given to widening the geographic scope of the dividend participation exemption and to the introduction of a possible foreign branch exemption.

In this regard, Finance Bill 2025 provides for a broadening of the geographic scope of the dividend participation exemption to include qualifying dividends received from jurisdictions that apply a non-refundable dividend withholding tax. The Bill also simplifies some technical conditions for the relief.

The changes are welcome from a Financial Services perspective as they will broaden the scope of the exemption and enhance Ireland’s attractiveness as a holding company location.

2. Taxation of Investments

The Finance Bill introduces a reduction in the rate of taxation (from 41% to 38%) that applies to income and gains from domestic life assurance policies, certain foreign life policies, Irish domiciled investment funds and equivalent offshore investment funds in other EU Member States, EEA States and OECD countries with which Ireland has double taxation agreements.  The reduced rate will take effect from 1 January 2026.

This new rate is still above the capital gains tax rate of 33% and does not go far enough to address the structural barriers facing retail investors, which is disappointing. We expected more in this area. We note the Minister’s stated intention in the Budget speech to publish a roadmap early next year, setting out the intended approach to simplify and adapt the tax framework to encourage retail investment. An Implementation Plan for the overall Funds Sector 2030 Report was published on 7 October.

3. Pillar 2 Updates

There are a number of updates in the Bill with respect to Pillar 2. They include the following:

• Amendments to provide for elements of the OECD January 2025 administrative guidance in legislation, including amendments relating to the treatment of certain deferred tax assets that arose prior to the application of Pillar 2 as a result of certain governmental arrangements or following the introduction of a new corporate income tax in other jurisdictions.
• An amendment to the definition of ultimate parent entity (UPE) to clarify that it excludes an orphan entity where there is another entity in the group that is not an orphan entity and meets the definition of a UPE.
• An amendment to confirm that a securitisation entity that is a Minority Owned Constituent Entity (MOCE) shall calculate its top-up tax in line with the MOCE provisions (i.e. on a standalone basis). However, the top-up tax (if any) will be allocated to the other Irish entities that are not securitisation entities.
• An amendment to the definition of a MOCE to clarify that it includes an orphan entity that is a constituent entity.

The amendments with respect to securitisation entities and the MOCE provisions are helpful and provide more certainty on the application of Pillar 2 for such entities.

Separately, there was an expectation that the legislation would be amended to allow the use of local accounts for Pillar 2 purposes, rather than the standard UPE accounts, in certain limited circumstances where the period of account is not the same as that of the UPE. This is relevant (for example) when an Irish entity is incorporated or liquidated during a relevant period and its period of account may not align with that of the group. However, the Bill does not include any changes or relaxation of the rules in this regard which is disappointing. The current position where a taxpayer may move between UPE GAAP accounts and local GAAP accounts is clearly unacceptable.

4. Interest Deductibility

The Bill introduces amendments to rules concerning the deductibility of interest where certain assets are transferred and refinanced within a group. Under current law, interest deductions are generally disallowed for loans from connected parties used by a company to acquire assets from another connected entity, except where specific exclusions apply.

The Bill now provides for an additional exclusion to these anti-avoidance provisions. Interest on a loan advanced to an acquiring company by a connected lender will be excluded, provided several conditions are satisfied. These include:

• the connected seller must have been entitled to a corporation tax deduction for interest on borrowings used to acquire the asset prior to the transfer;
• the connected lender must be subject to tax on the interest income either in Ireland, elsewhere in the EU, or in a jurisdiction with an existing tax treaty with Ireland; and
• the loan to the acquiring company must be for bona fide commercial purposes.

However, even where the exclusion is applicable, the acquirer’s deductible interest is limited by reference to the principal outstanding on the seller’s borrowings relating to the asset immediately before the intra-group transfer. In a scenario where only a portion of the seller’s borrowings relate to the acquired asset, the outstanding principal must be allocated on a just and reasonable basis to determine the relevant amount at the time of acquisition.

This amendment is particularly relevant in any group with highly leveraged asset transfers such as aviation finance / leasing. It is a welcome amendment, but it does introduce practical difficulties for taxpayers in assessing the quantum of deductible interest post-acquisition (as outlined above). The amendment applies to asset transfers executed on or after 1 January 2024.

5. Dividend Withholding Tax Exemption

A Dividend Withholding Tax Exemption for Investment Limited Partnerships and equivalent EU/EEA partnerships is being introduced in Finance Bill 2025 to support opportunities for growth in the funds industry, specifically in the private assets space. This amendment is intended to increase the attractiveness of the Investment Limited Partnership as a fund structure and to help cement our position as a desirable location for regulated investment funds.

To avail of the exemption, an Investment Limited Partnership or equivalent EU/EEA partnership must be beneficially entitled to not less than 51 per cent of the ordinary share capital of the Irish company making the distribution.

The exemption is to apply in respect of distributions made on or after 1 January 2026.

6. R&D Tax Credit Changes

The Bill includes an enhancement to the R&D tax credit; rising to 35%, reflecting a 10% increase in the last two years. The Irish government is keen to demonstrate commitment to retaining existing investment in R&D and also winning the next wave of foreign direct investment.

These changes are relevant for any financial services business engaged in qualifying R&D activity; including many banks engaged in technology development and software for use in the business in Ireland or the wider Group.

7. Foreign Entity Classifications

The Bill introduces a new section addressing the tax treatment of foreign body corporates. The section states that if a foreign body corporate has characteristics that are substantially similar to those of an Irish partnership under Irish law, it will be treated as a partnership for Irish tax purposes. On that basis, each member will be subject to Irish tax on their share of income, profits, or gains. The term “substantially similar to” is not defined within the Bill.

The amendment is helpful in that it confirms the existence of legal personality is not wholly determinative in assessing the tax treatment of a foreign entity. However, further clarity on this would be welcome particularly as “substantially similar” is not defined in this context.

8. Stamp Duty Exemption – Euronext

A new stamp duty exemption for transfers of stocks and marketable securities in Irish registered companies is to be introduced to replace an existing stamp duty exemption for companies trading on the Euronext Growth Market. The replacement will apply to shares of companies with a market capitalization of less than €1billion that are admitted for trading on certain regulated markets. This relief, which aims to support Irish capital markets and the growth of Irish businesses, will expire on 31 December 2030.

9. Bank Levy

The Bank Levy is extended for a further year with a target yield of €200 million and will be based on deposits at the four liable financial institutions at the end of 2024 (previously 2022).

10. Employment Taxation

The Bill updates the eligibility criteria for Foreign Earnings Deduction (FED) and Special Assignee Relief Programme (SARP), increasing the FED cap to €50,000 and extending the relief for a further five years to 2030. It also expands to qualifying countries for FED to include the Philippines and Turkey. The Bill also confirms the extension of SARP to 2030 and increases the minimum salary threshold for new SARP claimants from €100,000 to €125,000. Under the Bill, certain administrative requirements in relation to SARP are also to be relaxed.

11. Value Added Tax (VAT)

The Finance Act 2024 introduced fixed charge penalties for non-compliance with CESOP information reporting. The 2025 Finance Bill now introduces a fixed penalty of €4,000 where returns are filed after the due date. In addition, a further penalty of €4,000 will arise for each subsequent quarter that the data remains outstanding.

The Bill also extends the VAT exemption for the management of special investment funds to the Automatic Enrolment Retirement Savings System (AERSS). The AERSS will be introduced on 1 January 2026, and the extension ensures that fund management services provided to the AERSS will be treated in the same way as those provided to Defined Contribution pension schemes and unit trust schemes established solely for the purpose of superannuation fund schemes.

Other VAT Updates

Seperately to the Bill, Revenue announced a phased roll out of mandatory eInvoicing and real-time VAT reporting last week. This signals probably the most significant change in VAT since the introduction of the tax over 50 years ago. The move to structured eInvoicing and Real-Time Reporting will fundamentally change the way businesses report and process VAT and should improve accuracy, transparency, and efficiency for tax authorities.

The rollout will commence in 2028 and ultimately Ireland’s domestic eInvoicing rules will align with the EU’s ViDA cross-border eInvoicing by July 2030.

Key milestones

The key impacts for business are

• eInvoices will replace traditional paper and PDF formats. Compliance with European Standard EN 16931 and the PEPPOL network framework is expected to apply. There will be a substantial change in invoice detail on each transaction, impacting financial systems, tax compliance, and reporting processes.
• Businesses must be equipped to receive structured eInvoices by November 2028, even if not yet required to issue them.
• The move should reduce administrative effort through automation and help prevent VAT fraud and improve oversight.

Organisations should start planning now to identify gaps, implement compliant solutions, and test readiness well before the 2028 deadline. EY’s Indirect Tax team is supporting clients across all sectors as they prepare for eInvoicing and ViDA. We can help assess readiness, close compliance gaps, and design solutions that integrate seamlessly with existing finance systems.

12. Interest Consultation

In recent years, there have been significant changes to Irish tax legislation relating to the deductibility and treatment of interest, making this an increasingly complex area. The Department of Finance indicated previously that it intended to simplify the domestic interest rules in due course. A Feedback Statement on the tax treatment of interest was issued in September 2024, inviting stakeholder input. EY submitted a response on this in January 2025, outlining a number of recommendations for simplification and alignment with international best practice.

The Bill does not propose any changes at this stage. However, a Roadmap has been published which provides an indicative timeline on future changes. Any changes will be introduced in a “phased” manner with certain items prioritised over others. Areas of priority were identified based on responses to the first Feedback Statement as follows:

• The alignment of tax treatment between trading and passive interest income for income tax and corporation tax purposes, including a move to an accruals basis of assessment for interest income under Case III and Case IV of Schedule D.
• The introduction of a renewed and simplified test for the deductibility of interest,
• The widening of the scope of interest deductibility to include ‘interest equivalent’ amounts which are economically equivalent to interest expenses.

The next step in this process will be in November 2025, when another Feedback Statement will be published; which will invite further comment / feedback from practitioners. The Department of Finance is expected to publish draft legislation in Spring 2026 in relation to these “phase one” changes. Phase two of this initiative will look at other more specific items such as S.110 companies, Case V rules on interest deductibility and anti-avoidance rules (among other items).

Clearly any changes in this area will need to be monitored closely by financial services taxpayers and will be directly relevant for structured finance, WAM (including s.110 companies), banking and also aviation finance.

13. Withholding Tax Consultation

Whilst not a Finance Bill item, the Department of Finance has indicated that it intends to launch a separate public consultation on withholding tax (WHT). This consultation will be undertaken jointly by the Department of Finance and Revenue, and will seek input from stakeholders across industry, including professional advisors.

At this stage, no further details have been provided regarding the potential scope of any changes or the specific measures being considered. The consultation will represent an important opportunity for engagement, particularly given the significance of WHT for the financial services sector, including wealth and asset management, aviation, structured finance, and banking.

The timing of this consultation remains uncertain, as no consultation paper has yet been issued. It is expected to take a broad view of withholding tax in Ireland and how it can be enhanced to reflect modern financial operations and digital processes. EY will continue to monitor developments closely and will be actively participating in the consultation in due course.

14. Crypto-Asset Reporting Framework (CARF) and the Common Reporting Standard (CRS)

The Finance Bill 2025 includes the transposition of DAC 8 including CARF which outlines the implementation of Part I of the OECD (2023) International Standards for Automatic Exchange of Information in Tax Matters. It details the obligations of Reporting Crypto-Asset Service Providers in collecting and reporting information about Crypto-Asset Users who are Reportable Users or have Controlling Persons that are Reportable Persons.

Key points to note:

• Definitions of terms for example, authorised officer, reporting period, and specified return date
• Registration requirements for Reporting Crypto-Asset Service Providers with the Revenue Commissioners.
• Due diligence procedures to determine if Crypto-Asset Users and Controlling Persons are Reportable/Non-reportable Users, with the respective documentary evidence.
• Reporting obligations, including the details that must be included in the return, such as names, addresses, TINs, and transaction details.
• Penalties for non-compliance, which include fines for failing to register, make returns, or retain records.

The Bill includes reference to the new definition of the Standard to include Part II of the OECD (2023) International Standards for Automatic Exchange of Information in Tax Matters: Crypto-Asset Reporting Framework and 2023 update to the Common Reporting Standard published on 8 June 2023.

The OECD amended CRS consolidated text (known as CRS 2.0) is available here.

The regulations are relevant for the reporting periods commencing on or after January 1, 2026 with the first reporting deadline due on June 30, 2027 for CRS and due on May 31, 2027 for CARF.

What’s Next?

The next stage of the process at which amendments may be tabled is the committee stage, which is expected to commence shortly. EY will continue to track the Bill as it progresses towards enactment and will be updating out clients in due course. It is expected that this Finance Bill will be enacted by the end of 2025.

Get in Touch

For tailored advice on how these changes may impact your business, please reach out to our Financial Services Tax team.