The Department of Finance has published a paper setting out the steps towards the introduction of changes to the way foreign dividends are taxed under Ireland’s corporation-tax system.
The paper includes details of a consultation process that will run from yesterday, 14 September, to 13 December.
The Government 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.
‘Tax and credit’
Under the current ‘tax-and-credit’ system, dividends received from foreign sources are subject to Irish corporation tax, but credit is given in Ireland for tax paid in other jurisdictions, up to the amount of Irish tax payable on the income.
The department describes the amount of incremental tax received under this system as “negligible”, adding that plans for a minimum 15% tax rate globally will further negate the potential for any tax to be paid in Ireland on such income.
The proposed change would act as a double-taxation relief measure, which would exempt certain qualifying foreign dividend income from corporation tax.
“Ireland is currently a significant outlier, being the only EU country, and one of a very small number of OECD countries, that does not operate some form of participation exemption for foreign dividends,” the department points out.
Minister for Finance Michael McGrath (pictured) says that the change will provide “much-needed administrative simplification and greater certainty” for businesses.
Among the considerations set out by the department are whether such an exemption should be full or partial, whether firms could choose to remain under the current system, and whether the proposal should be limited to dividends received from certain jurisdictions.
The consultation process will also seek views on whether there should be a similar exemption for the profits of foreign branches of Irish companies.
In a foreword to the paper, Minister McGrath says that further examination of the potential benefits and impacts of such a branch exemption is needed before a decision can be made.