Ireland’s vulnerability to a fall in the amount of corporation tax that a small number of U.S. companies pay into the Exchequer has been a cause of concern for some time. In April 2025 the Council warned that things are precarious with corporation tax receipts accounting for 29% of all tax revenue, far beyond what might be considered stable or sustainable.
Judging by today’s Budget speech, the message made it to Kildare St. but is the Minister for Finance’s response the correct one? The reduction in the VAT rate for food-led hospitality from 13.5% to 9%, and the VAT cut for new-build apartments will be welcomed by both the hospitality and construction sectors. But if the flow of corporation tax suddenly dries up, these things alone will be unlikely to maintain employment and replace the lost tax revenue.
The answer to this conundrum lies in strengthening Ireland’s indigenous economy. After years of neglect the industrial and scientific sectors are in urgent need of additional support. One way of providing this is to make sure that the tax incentives are fit for purpose.
Take Entrepreneur Relief. As it stands it offers a 10% rate of CGT on the first €1m of gains from the disposal of business assets. But the Minister’s proposed increase to €1.5m is far too low to inspire budding entrepreneurs to set up in business. A ceiling of €10m might do this.
Retirement Relief is another example of an ineffective relief aimed at the business community. It is needlessly complicated and offers minimal exemptions for gains of up to €750,000. These things have turned it into a museum piece. Very often its ceiling is so low that it becomes unusable. A streamlined relief with a more realistic ceiling is essential if it is to become a useful incentive for the business community.
But of all the reliefs, the KEEP scheme is the most critical. It allows indigenous firms to unlock the most valuable resource of all, access to skilled top-level employees. Despite this the scheme remains cumbersome and difficult to use. In Ireland most of the companies that are capable of using the scheme are unquoted and, as a result, do not have publicly available share prices.
Tax legislation requires a company using the scheme to grant options at market value. But without an objective share price or a safe harbour guidance, valuation turns into an inherently subjective exercise. However failure to achieve a valuation that is acceptable to Revenue will result in the share options failing to qualify for the KEEP scheme. This heaps tax and commercial risk on the user, risks that could easily be avoided by providing an alternative sanction.
Reliance on foreign direct investment for economic growth is rather like playing football with only one foot. An urgent focus on indigenous industry would allow Ireland to kick with both.
To read the full McAvoy & Associates 2026 Budget Briefing, Click Here.
