Irish Participation Exemption for Foreign Dividends – Introduction
On 5 April 2024, the Irish Government released a consultation on a potential new tax exemption for qualifying foreign dividends as part of the Finance Act 2024.
The proposed participation exemption could mean significant changes to the way foreign dividend income is taxed, impacting Irish corporation tax starting 1 January 2025.
Here’s the lowdown…
What Is a Participation Exemption?
Currently, Ireland operates on a “tax and credit” system, which taxes foreign dividends but allows credits for taxes paid abroad.
The proposed participation exemption would remove Irish corporation tax on qualifying foreign dividend income, aligning Ireland with international best practices and making the country more competitive for business investment.
The consultation document outlines key features of the proposed regime, including eligibility criteria and other important details.
The exemption is intended to support Irish companies with foreign subsidiaries and make Ireland a more attractive location for international businesses and investment funds.
Key Features of the Participation Exemption
The consultation outlines a strawman proposal, which serves as a draft for feedback and discussion. Here’s a summary of its key points:
- The exemption would apply to Irish tax resident companies and certain non-resident companies operating in Ireland through a branch or agency;
- Companies must control and own at least 5% of the foreign subsidiary making the dividend;
- The foreign subsidiary must be tax resident in an EU/EEA country or a country with which Ireland has a tax treaty (more than 75 countries are covered);
- Dividends from all income, not just trading income, will qualify for the exemption;
- The participation exemption would be optional, allowing companies to “opt-in” for a three-year period while keeping the existing “tax and credit” system as an alternative.
Why This Matters
The proposed participation exemption is expected to benefit international businesses with Irish-based subsidiaries, similar to the introduction of a participation exemption for capital gains some 20 years ago.
With the OECD’s Global Minimum Tax rules now in effect in Ireland for large multinational groups, it’s crucial for these companies to manage their tax obligations efficiently.
The new regime could also increase the attractiveness of Ireland for private equity funds, providing more flexibility for investment structures.
Irish Participation Exemption for Foreign Dividends – Next Steps
The consultation period for the feedback statement runs until 8 May 2024, with a second feedback statement expected later in the year.
Final thoughts
If you have any queries about this article on the the Irish Participation Exemption for Foreign Dividends, or tax matters in Ireland more generally, then please get in touch.