The Government has published revised proposals to change the way foreign dividends are taxed under Ireland’s corporation-tax system.

The Minister for Finance Jack Chambers 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 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.

‘Strawman’ proposal

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

Earlier this year, the Government published a ‘strawman’ proposal, setting out how the new system could work, and asked for further feedback.

It has now published its response, and has asked for further comments from interested parties by Thursday 5 September (12 noon).

‘Opt-in’ system

The proposals published today (27 August) state that the geographic scope of the participation exemption will remain unchanged, applying to dividends received from companies that are resident for tax purposes in the EU/EEA, or jurisdictions with which Ireland has a double taxation agreement.

The Government has, however, revised its approach to a proposed ‘opt-in’ system, under which companies could choose to avail of the new rules for three years. Some stakeholders proposed that the exemption should be by default, unless the company opted out.

“A revised approach is now proposed, whereby a taxpayer would claim the participation exemption on the company’s annual corporation tax return. A company would have the right to choose, each year, whether to claim the exemption or not,” the Department of Finance stated.