BUDGET 2027: BUSINESS TAXATION
Capital Gains Tax
The standard rate of Capital Gains Tax (CGT) in Section 28(3) of the TCA 1997 is being reduced from 33% to 31%. This reduction applies in respect of disposals made on or after 7 October 2026. There will be no change to the 33% rate which applies to the disposal of development land in Section 649A of the TCA 1997.
Research & Development tax credit
Following an increase in last year’s budget, the R&D tax credit remains available at 35% for all qualifying R&D expenditure. The first-year payment threshold will increase from €87,500 to €105,000. This is the amount up to which a claim can be paid in full in the first year, rather than being paid in instalments over three years. The increase will provide valuable cash flow support to companies undertaking smaller R&D projects or engaging with the credit for the first time.
Subcontracting provisions allow the credit to be claimed for qualifying R&D activities outsourced to third level institutions in the EEA, or other unconnected third parties worldwide. Previously these provisions were subject to a cap being the higher of 15% of qualifying in-house R&D expenditure, or €100,000 (provided at least the same amount is incurred in house). In support of collaboration with higher education institutions and worldwide partners, these limits will be increased to 20% and €200,000.
A change is being made to improve the recognition of the R&D tax credit for the purposes of preliminary corporation tax. This will provide a cashflow benefit to companies where the credit is offset against tax liabilities.
A new provision is being introduced which will allow claimant companies to increase their qualifying cost base by 5% of qualifying R&D wage costs, subject to the company having incurred a sufficient level of expenditure.
An amendment is being introduced to provide that if a clinical trial is regulated, this fact may be used to satisfy the science test, to recognise R&D work undertaken by Irish companies as part of global trials and to reduce administrative burden. This measure will be provided for at Committee Stage of the Finance Bill as technical work is ongoing on development of the relevant legislation.
Extension of Currently Available Reliefs
A number of reliefs which were set to expire over the coming years have had their lifespans extended:
Knowledge Development Box (KDB) relief to be extended to 1 January 2032, with a limited time option for existing claimant companies to elect out of the KDB regime.
Start-Up Companies Relief is being extended by four years to 31 December 2030. It provides new start-up companies with relief from corporation tax on trading income (and certain capital gains) in respect of their first five years of trading.
Employment Investment Incentive (EII), the Start-Up Capital Incentive (SCI), and the Start-Up Relief for Entrepreneurs (SURE) are State Aid reliefs for risk capital investments in qualifying small and medium enterprises. Subject to the adoption of new State Aid rules scheduled for 1 January 2027, these reliefs will be extended in their current format.
Angel Investor Relief will be extended subject to the adoption of new State Aid rules.
Changes to Preliminary Corporation Tax Requirements
Budget 2027 will provide for the following administrative changes to preliminary corporation tax requirements, to reduce uncertainty and improve flexibility for companies:
An increase in the small company threshold from €200,000 to €350,000. This is the threshold, referring to corporation tax liability of the prior year, up to which a company is considered to be a ‘small company’ and therefore subject to less onerous preliminary tax requirements.
An extension to the current limited top-up mechanism, to provide that preliminary tax requirements are satisfied where at least 80% of the current year liability has been paid by the final preliminary tax instalment date and a top-up payment to reach 100% of the liability is made within four months of the end of the accounting period.
Removal of a 45% deeming provision, such that an underpayment of the second instalment of preliminary tax does not result in a deemed underpayment of the first instalment, where the first instalment payment was not of an amount at least equal to 50% of the prior year liability.
Farming Updates
Reduced VAT on respiratory vaccines for livestock – oral and non-oral medicines are currently treated differently for VAT purposes under the Irish taxation system with non-oral medicines liable for the standard rate of VAT of 23% while oral medicines (including vaccines) are zero-rated. The intention is that the new VAT rate for non-oral respiratory vaccines for livestock will be 9%.
Farmer’s Flat Rate VAT – the Farmer’s Flat Rate Payment compensates farmers who opt not to register for the VAT incurred on their purchases. It is revised every Budget and is derived from a calculated average of VAT costs based on macroeconomic data collected from the CSO and Revenue over the preceding three years. The rate for 2027 will be 4.8% (4.5% in 2025).
Accelerated Capital Allowances for Farm Safety Equipment, which allows for accelerated capital allowances of 50% per annum for eligible equipment, is being extended by three years until 31 December 2029. Twelve additional items are also being added to the list of the eligible equipment.
Succession Farm Partnerships (SFPs) Tax Credit – the value of the tax credit is being increased from €5,000 to €10,000 for SFPs registered from and including 1 January 2027. The three-year holding period before the succession can take place is being removed for SFP applications made from and including 1 January 2027 and will not apply to any applications made before that date.