Budget 2026: Securing Ireland’s Competitiveness – Derek Henry, Partner and Head of Tax, BDO Ireland

Budget 2026 arrives at a decisive moment for Irish business. While Ireland’s economy remains fundamentally strong, its competitiveness is under sustained pressure from inflation, talent shortages, tax reforms, and persistent housing and
infrastructure challenges. To maintain momentum, businesses – both indigenous and multinational – need a budget that delivers clarity, ambition, and targeted reform.

Context: Ireland at a Crossroads
Ireland’s reputation as a competitive, open economy is hard-won but fragile. Rising costs, infrastructure deficits, complex tax rules, and global competition for talent necessitate decisive action. Budget 2026 must reinforce our resilience by
addressing housing, talent retention, personal tax reform, FDI incentives, and innovation.

Five Pillars of Reform
1. Real Estate & Construction
Ireland’s housing crisis is at the heart of economic and social concerns. Affordability and supply are at historic lows, impacting both citizens and businesses. While some progress has been made, urgent acceleration is required. We advocate for:

Targeted tax incentives for apartment, student, and age-related
accommodation.
Trading Real Estate Companies (TRECs): A new class of company with:
- 12.5% Corporation Tax on rental income
- Deductibility of relevant costs
- Removal of Close Company Surcharge
- 20% CGT/income tax rate on land sales to TRECs
- Enhanced ESG retrofitting deductions
- Access to CGT Retirement Relief and CAT Business Asset Relief

These measures would support active developers, incentivise sustainable building, and remove barriers to housing supply.

2. Personal Tax Reform
Ireland’s personal tax system is complex and punitive at middle incomes, impacting talent retention and investment.

Key recommendations:

Raise the 40% income tax threshold
Introduce a 30% intermediate tax rate
Align USC and PRSI reliefs with income tax deductions
Reduce CGT from 33% to 20%; increase annual exemption
Increase CAT thresholds and reliefs

3. Foreign Direct Investment (FDI)
Ireland’s FDI appeal is challenged by tax complexity and unpredictability. To sustain our global competitiveness:

Establish an Office of Tax Simplification
Reform interest deduction rules and align rates across income types
Enhance dividend participation regime and introduce a branch exemption regime
Support emerging sectors (e.g., AI) with targeted incentives
Broaden IP definitions for depreciation
Extend the geographic reach of foreign dividend participation exemptions
Amend definitions of “relevant subsidiary” and “relevant territory”
Expand scope to include Section 110 companies and foreign branch income
Simplify and modernise the Employment Investment Incentive Scheme (EIIS)

4. Research, Development & Innovation (R&D)
R&D is vital for high-value employment and economic growth. To strengthen innovation:

Broaden R&D eligibility criteria, especially for SMEs
Simplify qualifying activity definitions
Increase outsourcing thresholds
Expand R&D credits to AI-related expenditure
Consider 100% capital allowances for AI firms in year one.

5. Talent Attraction & Retention
A skilled workforce is Ireland’s greatest asset, but talent attraction and retention are
under strain.

Key actions:

Enhance and make SARP permanent to attract global talent
Reform Benefit-in-Kind (BIK) rules, especially for housing and employer loans
Promote share-based compensation through simplification
Expand and streamline KEEP
Impose a moratorium on new employer reporting requirements
Supporting Domestic Investment

Despite Ireland’s international asset management strength, domestic retail investment is low. Reforms to encourage long-term savings include:

Remove 8-year deemed disposal for funds
Align tax on investment products with CGT
Introduce limited loss relief provisions
Repal the 1% Life Assurance Levy
Simplify offshore fund taxation
Explore incentivised savings and investment accounts as a future priority.

Conclusion
Budget 2026 is a pivotal opportunity to reinforce Ireland’s competitiveness. Through targeted reforms in real estate, tax, FDI, innovation, and talent, we can future-proof the economy and secure Ireland’s position as a global business hub. BDO Ireland stands ready to support government in delivering these ambitions, leveraging our expertise to shape policies for sustainable growth and innovation.

Author: Derek Henry, Partner and Head of Tax at BDO.

Graduate of the BA Accounting & Finance and the Msc Accounting