Finance (No.2) Bill 2026 headlines

Business taxation

Research & Development tax credit & Knowledge Development Box

As announced by Tánaiste Harris in his Budget speech, the Bill includes proposals to enhance the R&D tax credit. This should signal to multinational corporations (MNCs) and indigenous companies that Ireland remains a great location to undertake R&D activity.

The specific proposals include:

• 105% of qualifying R&D payroll costs will be taken into account in computing ‘expenditure on research and development’, subject to the company incurring non-qualifying trading expenditure of at least 5% of the qualifying R&D payroll cost,
• an increase in the subcontracting limits to 20% and €200,000 (from 15% and €100,000) for institutes of higher education and universities in EEA Member States and unconnected third parties,
• an increase in the first instalment threshold from €87,500 to €105,000, and
• a claimant can now specify that the first, second or third instalment of the R&D tax credit be offset in arriving at the preliminary corporation tax amount payable in respect of that accounting period and subsequent accounting periods.

These changes will apply in respect of an accounting period, for which the specified return date occurs on or after 23 September 2028. This generally means that these changes will apply to a 12-month accounting period commencing on or after 1 January 2027.

The Bill proposes to extend the availability of the Knowledge Development Box (KDB) to accounting periods commencing before 1 January 2032. In addition, in scope groups will have a one-time limited option to elect out of the KDB regime. MNCs in scope of Pillar Two may choose to opt out of the KDB regime as the associated tax benefits may be negated by the 15% minimum effective tax rules. 

Corporation tax interest deductibility rules

The Bill includes important simplifications to the ‘Section 247 – interest as a charge’ provisions. Section 247 allows companies to obtain tax relief for interest paid on loans used for a qualifying purpose, such as to acquire shares in or lend to a trading company or a rental company. The main simplifications and clarifications included in the Bill are:

• For accounting periods commencing on or after 1 January 2027:
  • it will no longer be a requirement for the investing company and the investee company to share a common director,
  • foreign incorporated companies that have characteristics substantially similar to those of an Irish partnership will not qualify for relief under Section 247 and will not be treated as companies for the purposes of the capital recovery rules. This may impact groups with US LLCs,
  • a new exclusion from the recovery of capital rules will apply where the capital recovered (or deemed to be recovered) is used to make a qualifying investment by the investing company, the company concerned or an intermediate holding company within 6 months of the recovery or deemed recovery of capital, and
  • where a transaction may otherwise give rise to multiple recoveries of capital, the rules will be modified so that the amount of capital deemed to be recovered will not exceed the total amount of capital recovered or deemed to be recovered.
• For new loans made on or after 1 January 2027:
  • the current ‘defray money applied’ requirement will be replaced with a ‘loan used’ and ‘amount’ requirement. Whilst the loan must continue to be a loan of money used for a qualifying purpose, the proposed change will allow the transmission of the money borrowed through the group to be evidenced by book entries, and
  • it will be possible for groups to re-apply a qualifying loan for a different ‘qualifying purpose’ upon its recovery, without having to return the funds to the original lender. Interest relief will continue to be available to the extent that the loan is re-applied for a qualifying purpose.

For groups in scope of the Interest Limitation Rule (ILR), the Bill proposes to extend by one year the deadline for making elections to form a domestic interest group and to apply the group and / or equity ratios.  The elections will need to be made within two years of the end of the accounting period to which they relate. This will apply for accounting periods beginning on or after 1 January 2027.  

Pillar Two

The Bill proposes a significant package of amendments to Ireland’s Pillar Two legislation. It gives effect to the “Side-by-Side” package of safe harbours that were agreed by the OECD Inclusive Framework in January 2026, following a G7 political agreement on the interaction between the Pillar Two rules and existing minimum tax regimes, most notably the US tax regime.

The Side-by-Side package of measures includes:

• An extension of the Transitional Country by Country Reporting (CbCR) Safe Harbour to FY27,
• A new Side-by-Side Safe Harbour that will exempt US headquartered groups from the application of the Pillar Two Income Inclusion Rule (IIR) and Undertaxed Profits Rule (UTPR) from FY26 onwards,
• A new Ultimate Parent Entity (UPE) Safe Harbour that will exempt the profits of a headquarter jurisdiction from the application of the UTPR,
• A Substance-based Tax Incentive (SBTI) Safe Harbour that allows certain qualified tax incentives to be treated more favourably under the Pillar Two rules, and
• A Simplified Effective Tax Rate (ETR) Safe Harbour that will replace the Transitional CbCR Safe Harbour. This calculation is significantly more detailed than the equivalent test from the Transitional CbCR Safe Harbour but is arguably not quite as complex as the full Pillar Two rules.

The Bill provides for a technical amendment to the Transitional UTPR Safe Harbour to reflect changes proposed in the OECD's May 2026 Administrative Guidance.

The Bill also makes provision for a revised version of the GloBE Information Return (GIR) to be added into Irish law. The new GIR template was published by the OECD in September 2026 and should be used for FY26 and subsequent filings.

The Bill provides for the incorporation of the OECD September 2026 Administrative Guidance into Irish law as a source of guidance. Technical amendments are proposed to address the treatment of explicitly conditional taxes and the application of the Qualified Domestic Top-up Tax (QDTT) Safe Harbour in respect of jurisdictions that require QDTT calculations to be prepared for a pre-determined period.

The Bill includes technical amendments to the Irish QDTT local financial accounting standard (LFAS) rule to address circumstances where a routine commercial transaction (e.g., an incorporation, liquidation, merger or acquisition) would otherwise cause the LFAS conditions to be breached and require Irish QDTT calculations to be prepared using the financial accounting data that is reflected in the group consolidated financial statements. The Bill proposes to extend the grace period in which these routine commercial transactions will not be considered to breach the LFAS conditions, thereby reducing the potential need for groups to switch between accounting standards when preparing Irish QDTT calculations.

The Bill includes relief from penalties for the late filing of a GIR or ‘notification of filer’ form. Where a group has appointed a designated local filing entity, penalties will be calculated as if one GIR or ‘notification of filer’ had been filed late by the designated local entity. Where no designated local entity has been appointed, a penalty cap of €1,000,000 will apply across the group’s Irish entities. 

Corporation tax preliminary tax payments

The Bill proposes an increase to the ‘small company’ preliminary corporation tax threshold from €200,000 to €350,000. Therefore, a company with a prior accounting period corporation tax liability of less than €350,000 (based on a 12-month accounting period) will have the option of paying its preliminary tax based on 100% of its prior period liability or 90% of the current period corporation tax liability. In addition, it will only have one preliminary tax payment due date for the accounting period.

A company that is not a ‘small company’ must pay preliminary tax in two instalments. However, the Bill will permit such a company to ‘top-up’ its final preliminary tax payment within 4 months after the end of the accounting period, without incurring interest, provided certain conditions are met.

The company must have paid: (i) at least 80% of its corporation tax liability for the current accounting period on or before the final preliminary tax due date and (ii) 100% of its corporation tax liability for the period once the top-up payment is made. An equivalent provision is included for small companies which takes into account that they only have to make one payment of preliminary tax.

The Bill also provides that, in calculating the interest due on a late payment of preliminary tax for a large company, the amount due and payable for the first instalment can be calculated based on the lower of 45% of the tax payable for the current accounting period or 50% of the corresponding tax liability for the prior accounting period. Currently, only the 45% threshold is used.

These amendments will apply for accounting periods commencing on or after 1 January 2027.

Definition of preference shares

The Bill proposes amendments to the definition of ‘preference shares’ used in various provisions of the Irish Taxes Acts. The existing definitions require a comparison of a company's shares with fixed-dividend preference shares that are quoted on an Irish stock exchange.

As no such shares are currently in issue, the Bill proposes to amend these provisions so that a fixed-dividend preference share admitted to trading on a regulated EEA market will be used as the comparator with effect from 1 January 2027. 

Property

Help-to-Buy

The Bill proposes to increase the maximum relief available under the Help-to-Buy scheme by €5,000 from €30,000 to €35,000. The change will apply from 7 October 2026, once the Bill is enacted.

Rent-a-Room relief

The Bill provides for a number of enhancements to Rent-a-Room relief. For the period from 27 July 2026 to 31 December 2030, Rent-a-Room relief will be available in respect of income arising from the letting of a room or rooms in an “auxiliary dwelling” located within the grounds of an individual’s sole or main residence.

Also, the annual exempt rental income limit will increase from €14,000 to €16,000 from 1 January 2027. The €16,000 limit will apply to the total income received from letting rooms in both the individual’s sole or main residence and any qualifying auxiliary dwelling.

Rent Tax Credit

The Bill proposes to increase the Rent Tax Credit from €1,000 to €1,150 for individuals and from €2,000 to €2,300 for jointly assessed taxpayer units. These increases will apply for the 2027 and 2028 tax years.

Derelict Property Tax

The Bill makes provision for the Derelict Property Tax (DPT) announced as part of Budget 2026. The annual tax will apply to residential and non-residential properties not in use as, or suitable for use as a dwelling, a business or trade premises or certain infrastructure or facilities.

Local authorities will be responsible for identifying the properties to be classified as ‘derelict property’ in their functional area.  In determining whether a building is a ‘derelict property’, a local authority will consider a number of factors.

The annual DPT rate will be 7% of the self-assessed market value of the property and will be collected by the Revenue Commissioners.  The first pay and file deadline will be 23 June 2028. Surcharges will apply for late filing of returns and undervaluation of the derelict property.  Vacant homes tax and local property tax (LPT) will be creditable against DPT.  

For the first liability year, local authorities will be expected to publish a preliminary register of derelict properties by 1 September 2027. Interested parties will be able to make a submission, between 1 January and 1 March 2027, to the local authority regarding the inclusion of a property in the preliminary register prior to its publication.

In addition, property owners will have the right to appeal the inclusion of a property on the preliminary register no later than 31 October 2027. The first final register will be published no later than 28 February 2028.

A similar annual cycle will apply for future liability periods, with local authorities identifying properties between March and August each year and preliminary and final registers published in September and March of that year respectively.

The DPT will apply on a phased basis in the first year of operation to towns and cities with a population of 4,000 or more. In the second year of operation, DPT will be extended to towns with populations of 2,000 or more. It is expected that a total of 107 towns will be in scope for the first year, increasing to 171 in year two.

The application of DPT is subject to a commencement order to be issued by the Minister for Finance. 

Residential Zoned Land Tax

RZLT is an annual 3% tax on the market value of land that is both serviced and zoned as suitable for residential development, subject to a number of exclusions.

The Bill includes a measure that will give landowners an opportunity, from 1 February 2027 to 1 April 2027, to request a change to the zoning of lands included in the RZLT map for 2027, due to be published by 31 January 2027. The relevant local authority will be obliged to acknowledge receipt of any such request by 30 April 2027 and notify the landowner of its decision by 30 June 2027.

It is proposed that an RZLT exemption will apply to land which will appear on the 2027 map where a rezoning request has been made and this request has been acknowledged by the local authority.

The exemption may not apply if the rezoning request relates to land that is the subject of a current planning application which proposes, or an extant planning permission which allows, residential development of the land. 

Green Transition measures

The Bill includes a limited range of measures to support the green transition: 

Vehicle Registration Tax for electric vehicles  

The Vehicle Registration Tax (VRT) relief for electric vehicles (EVs), which was due to end on 31 December 2026, will be extended for a further two years to 31 December 2028.

The Bill also provides for changes to the VRT rates applying to passenger cars. These rates are determined by reference to the vehicle’s carbon dioxide emissions, with higher rates applying to vehicles with higher emissions. From 1 January 2027, the VRT rates applying to cars with carbon dioxide emissions of more than 80g/km will increase by 1%, while the rates applying to cars with emissions of 80g/km or less will remain unchanged. 

Microgeneration of electricity

The Bill provides for an increase to €600 from €400 in the exemption from income tax, USC and PRSI for certain profits arising to an individual from the microgeneration of electricity supplied to the grid. The increase will apply for the 2027 and 2028 tax years.