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Proposals on corporate-tax exemption set out

The Government has published its response to feedback received from a consultation process carried out last year on plans to change the way foreign dividends are taxed under Ireland’s corporation-tax system.

The Minister for Finance Michael McGrath intends to legislate for what is known as ‘participation exemption’ for foreign-sourced dividends in the Finance Bill 2024, with the new system coming into effect from 2025.

The statement published on Friday (5 April) includes what is being called a ‘strawman’ proposal, setting out how the new system could work.

A fresh consultation process on this proposal will now run until close of business on Monday 8 May.

Ireland ‘an outlier’

The Department of Finance has described the current ‘tax-and-credit’ system, under which dividends received from foreign sources are subject to Irish corporation tax, but credit is given in Ireland for tax paid in other jurisdictions, as an “outlier” among EU and OEC countries.

The proposed change would act as a double-taxation relief measure, which would exempt certain qualifying foreign dividend income from corporation tax.

The ‘strawman’ proposal includes the following elements:

• The regime will apply to companies within the charge to Irish corporation tax – including Irish-resident companies and certain non-resident companies carrying on a trade in the State through a branch or agency,
• Companies will have flexibility to opt in to the regime, with an option to apply for a minimum period of three years,
• Dividends received from companies that are resident for tax purposes in the EU/EEA, or jurisdictions with which Ireland has a double taxation agreement, will qualify,
• Dividends received from a jurisdiction on the EU list of non-cooperative jurisdictions for tax purposes will not qualify for relief, and
• Qualification will not be restricted to dividends derived from trading profits.