Finance (No. 2) Bill 2026: Key Tax Measures for the Financial Services Industry

Finance (No. 2) Bill 2026 (the “Bill”) sets out the legislative changes needed to give effect to the Budget 2027 announcements made by the Minister for Finance on 6 October 2026.

For the financial services sector, the main measures are a reduction in the exit tax rate for investors in Irish investment funds, a simplification of the tax treatment for Irish-resident investors in exchange-traded funds (ETFs), the new Individual Investment Account and a simplification of the rules governing tax relief for interest on borrowings used for lending and investment.

Banking, insurance and asset management groups should also note significant changes to Pillar Two, the international 15 per cent global minimum tax rules for large multinational groups.

While the Bill brings welcome certainty in a number of key areas for the financial services sector, the failure to remove the eight-year deemed disposal rule for Irish investment funds, under which investors are taxed as if they had disposed of their holding on each eighth anniversary of acquisition, and which has also been carried over to the simplified ETF taxation regime, represents a missed opportunity.

Below, we summarise the Bill's key measures for the financial services sector.

Investment Funds

Simplification of the tax treatment for Irish-resident investors in ETFs

The Bill simplifies the tax treatment for Irish-resident investors holding units in Irish funds through a recognised clearing system, which is how ETFs are typically held and settled. The tax treatment of non-Irish investors in Irish ETFs is unchanged. The simplified regime will operate as follows:

Self-Assessment – As under the current rules, Irish ETFs will not be required to deduct exit tax on a relevant fund unit event (broadly, the equivalent of a chargeable event for these purposes) in respect of their Irish-resident investors. Instead, those investors must self-assess and pay any tax due through their own tax returns.

Simplification – Under the current rules, Irish-resident ETF investors must treat their holding as though it were an investment in an equivalent offshore fund, which is complex to apply in practice. This is replaced by a self-contained gross roll-up regime, with tax rates aligned with the exit tax rates applying to other Irish funds, giving Irish investors greater clarity and certainty.

Taxable gains – A chargeable event arises on each distribution, redemption or transfer of units, and on a deemed disposal at the end of every eight-year holding period, even where no actual disposal has taken place. Tax applies at 25 per cent for corporate investors, 35 per cent for other investors and 60 per cent where the investment is a personal portfolio investment undertaking (broadly, where the investor can influence the selection of the fund’s assets).

No loss relief – Losses cannot be offset against gains.

Transitional relief – Tax paid under the previous equivalent offshore fund treatment before 1 January 2027 is treated as paid under the new regime and remains available to be credited, or refunded, against tax on a later chargeable event. In addition, tax paid on an earlier chargeable event, most notably the eight-year deemed disposal, is credited against tax due on a subsequent distribution, redemption or transfer, with any excess refunded, so that the same gain is not taxed twice.

Switches and transfers – Exchanges of units within the same fund or umbrella, and certain transfers that are not chargeable events under the existing rules (for example, between spouses or civil partners), are not relevant fund unit events, and the transferee inherits the transferor’s cost.

Conversion into non-ETF units – An exchange of ETF units for units in the same fund that are not held in a recognised clearing system (for example, a conventional, non-listed share class) is an excluded event, as is an equivalent exchange into another sub-fund of the same umbrella, provided the exchange is effected by the fund on arm’s length terms. This mirrors the long-standing treatment of share class and sub-fund switches under the investment undertaking tax regime, so that no tax arises at the point of conversion and any gain is instead taxed on a later chargeable event in respect of the new units.

The simplified treatment brings welcome certainty for Irish-domiciled ETFs and their promoters, though it is disappointing that the eight-year deemed disposal rule survives for ETF investors and that losses on investments in ETFs may not be used to offset gains.

Reduction in exit tax rates

As announced on Budget Day, the exit tax rate on income and gains from Irish investment funds, domestic life assurance policies, certain foreign life policies and equivalent offshore funds in EU and EEA states and OECD countries with which Ireland has a double tax treaty falls from 38 per cent to 35 per cent.

The reduced rate applies to chargeable events and payments on or after 1 January 2027, including in respect of ETFs, and follows a reduction from 41 per cent to 38 per cent from 1 January 2026. By comparison, as noted further below, the standard rate of capital gains tax (CGT) falls from 33 per cent to 31 per cent for disposals on or after 7 October 2026, leaving a four-percentage-point differential between the two rates.

The Individual Investment Account

The headline retail investment measure is the new Individual Investment Account, which represents a significant new distribution opportunity for fund managers, insurers and investment firms.

The key features are:

• The account will be open to Irish-resident individuals aged 18 or over who have a Personal Public Service Number (PPSN), with one account per person.

• No tax will be charged on the first €50,000 of account value. Any value above that will be taxed at a flat 1 per cent a year, based on the average daily value of the account.

• Contributions will be capped at €12,000 a year. There is no minimum contribution or minimum holding period, and money can be withdrawn at any time without a tax charge. Contributions cannot be made while the individual is not resident in Ireland.

• Investments in the account will fall outside the existing retail investment tax regimes. No CGT, dividend or interest withholding tax, investment undertaking or life assurance exit tax or encashment tax will apply, nor will the eight-year deemed disposal rule. The annual 1 per cent investment account tax is a final liability tax, and the 1 per cent levy on insurance premiums will not apply to insurance-based investment products held in the account.

• Eligible investments are limited to shares and bonds listed on a regulated EU/EEA market or an equivalent non-EU market, UCITS funds (including UCITS ETFs, but not structured UCITS) and insurance-based investment products.

• Only qualifying account providers registered with Revenue may offer an account. These may include credit institutions, MiFID investment firms, insurance undertakings and UCITS management companies authorised in Ireland or elsewhere in the EEA. Providers based in an EEA state outside the EU without an Irish fixed place of business must either enter into an agreement with Revenue or appoint an Irish-resident representative. Revenue will publish a register of qualifying providers and may revoke a provider’s status where it fails to meet its obligations.

• Providers will handle all tax reporting, administration and payment, so account holders will not need to deal with Revenue (the Irish tax authority). Each year, providers will calculate the tax as at 31 December and report to Revenue by the following 31 March, even where no tax is due, with the tax becoming payable on 14 April. Providers must also issue annual statements to account holders and keep records.

• However, if a provider fails to pay tax due on an account, Revenue may recover the unpaid tax directly from the account holder.

Next Steps

The account will only become available once the Minister for Finance makes a commencement order and the Budget indicated a launch date of 1 July 2027 in this regard. Given the €12,000 annual contribution limit and €50,000 tax-free threshold, few accounts are likely to give rise to a tax liability for several years, but the rules are detailed and Revenue has power to make further regulations on the administration of the scheme. As compliance risk rests firmly with providers, firms considering offering the account should begin assessing the registration, systems, declaration and reporting processes, together with the governance and controls, needed to meet their obligations.

Wider Financial Services Measures

Simplification of interest relief

Following the Government’s 2025 review of the taxation of interest in Ireland, the Bill simplifies the rules governing relief for interest as a charge on borrowings used to lend to, or acquire shares in, other companies. The main changes, which generally apply for accounting periods commencing on or after 1 January 2027, are:

• For loans made on or after 1 January 2027, relief will depend on the borrowed amount being “used” for a qualifying purpose, replacing the existing requirement to trace the application of the money borrowed. The flow of funds through a group may be evidenced by book entries, and a qualifying loan may be re-applied for another qualifying purpose on its repayment without the funds first being returned to the lender. Relief will be denied only for interest accruing while the loan is applied for a non-qualifying purpose, and a currency conversion (including through a currency swap) will not of itself be treated as a non-qualifying use. Existing loans remain subject to the current rules.

• Under the recovery of capital rules, relief will no longer be restricted where capital recovered from the investee is, within six months, reinvested (by the investing company or an intermediate holding company) in a new qualifying investment or loan, or applied to repay a qualifying loan. New rules also allocate a recovery of capital across multiple loans, cap the restriction at the amount actually recovered, and prevent duplicate relief on interest on borrowings used to fund the reinvestment.

• The anti-avoidance rule restricting relief on connected-party borrowings will not apply where the lender is a connected on-lending entity whose only business is on-lending funds borrowed from unconnected lenders. A further carve-out protects connected-party refinancing of intra-group asset acquisitions where the lender is taxable on the interest, and applies to acquisitions on or after 1 January 2024. Separately, restrictions on on-lending to companies outside the charge to Irish corporation tax will not apply where the lending is within the scope of Ireland’s transfer pricing rules.

• Foreign entities that are substantially similar to Irish partnerships, having regard to their characteristics and members’ rights, are excluded from relief, which may affect groups using US limited liability companies. In addition, the requirement for a common director between the investing and investee companies is removed for both existing and future loans.

These changes are welcome and should reduce complexity for lending structures, credit funds, acquisition finance and holding company arrangements. Existing financing structures should be reviewed to see whether the new rules offer more flexibility or require changes to documentation and record-keeping. Further changes are expected as the Government’s phased reform of the taxation of interest continues.

Interest limitation rule

The interest limitation rule restricts deductions for net borrowing costs exceeding 30 per cent of a company’s tax-adjusted EBITDA. Groups may make a number of elections under the rule, including to form an interest group and to apply the group ratio or equity ratio.

For accounting periods commencing on or after 1 January 2027, the deadline for making these elections is extended to two years after the end of the relevant accounting period, with a corresponding change to the filing deadline for the interest group return. This represents a welcome change as it resolves a common practical issue for clients in respect of these elections.

Preliminary tax

Companies must pay preliminary tax, an advance payment of their estimated corporation tax liability, with interest charged on any underpayment. Under the new rules, a company will meet its preliminary tax obligations if it has paid at least 80 per cent of its current year liability by the relevant due date (the single payment date for small companies, the final instalment date for large companies) and tops up the payment to 100 per cent within four months of its year end. This will be of particular assistance to financial services entities whose results include fair value movements on assets or liabilities.

The small company threshold, below which preliminary tax may be based on 100 per cent of the prior period liability, will rise from €200,000 to €350,000, and start-up companies below that threshold will not be required to pay preliminary tax in their first accounting period. For large companies, interest on an underpaid first instalment will be calculated by reference to the lower of 45 per cent of the current period liability and 50 per cent of the prior period liability.

These measures will apply to accounting periods commencing on or after 1 January 2027 and are a welcome simplification of the corporation tax payment regime.

VAT exemption for financial services

The Bill updates the wording of the VAT exemption for financial services, covering transactions concerning current, deposit and savings accounts, payments, transfers, debts, cheques and other negotiable instruments, to align it more closely with EU law. The Department of Finance has confirmed there will be no change in practice, as Revenue already applies the EU rules. The amendment is a drafting clarification rather than a substantive change.

Reduction in the CGT rate

The standard rate of CGT falls from 33 per cent to 31 per cent for disposals made on or after 7 October 2026. The 33 per cent rate for development land is unaffected. The cut is directly relevant to exits from portfolio investments, share sales and the timing of disposals by institutional investors, sponsors and management teams.

Bank levy

As expected, the Bill extends the bank levy for a further year at a rate of 0.1025 per cent on eligible deposits held by AIB, EBS, Bank of Ireland and PTSB on 31 December 2024.

Pillar Two

The Bill gives effect to the OECD Side-by-Side Package agreed in January 2026 and to further OECD administrative guidance published in May and September 2026. The Transitional CbCR Safe Harbour, which allows groups to rely on country-by-country reporting data to demonstrate that no top-up tax is due, is extended to fiscal years beginning on or before 31 December 2027, but not to any fiscal year ending after 30 June 2029. Four new safe harbours are introduced: the Simplified Effective Tax Rate Safe Harbour, the Substance-based Tax Incentive Safe Harbour, the Ultimate Parent Entity Safe Harbour and the Side-by-Side Safe Harbour.

The Side-by-Side Safe Harbour switches off top-up tax under the Income Inclusion Rule and the Undertaxed Profits Rule for groups headquartered in a qualifying jurisdiction from 2026. At present only the United States qualifies. Irish entities of those groups will, however, remain subject to Ireland’s domestic top-up tax and related filing obligations. The permanent Simplified Effective Tax Rate Safe Harbour will generally apply from 2027 and, although based on financial accounting data, involves considerably more detailed calculations than the transitional safe harbour it replaces.

These changes are welcome. The Bill also caps aggregate late filing penalties at €1 million for Irish entities of a group that has not appointed a designated local entity (where one has been appointed, only one return is treated as late), introduces a new €10,000 fixed penalty and adopts the OECD’s revised GloBE Information Return. In-scope banking, insurance and asset management groups should consider which safe harbours may be available to them and how the changes interact with their existing domestic top-up tax and Income Inclusion Rule/Undertaxed Profits Rule positions and filing processes.

What next?

The Bill will now proceed through the Oireachtas and may be amended at Committee Stage before it is enacted as Finance (No. 2) Act 2026. Stakeholders should review the provisions as drafted and consider raising any comments in advance of Committee Stage. Several measures, including the Individual Investment Account, will only take effect once a commencement order is made by the Minister for Finance.

Conclusion

The Bill delivers the detailed rules for the measures announced in Budget 2027, including a lower exit tax rate, a clearer framework for Irish ETFs, a new retail savings product and simpler interest relief for lending and investment structures. However, it stops short of the deeper reform of the funds taxation regime that the industry has long advocated. The eight-year deemed disposal rule, and the gap between the exit tax and CGT rates, remain unaddressed.

We will keep you updated as the Bill progresses. In the meantime, if you have any questions about this briefing, please contact your usual Dillon Eustace Tax team contact.

DISCLAIMER: This document is for information purposes only and does not purport to represent legal or tax advice. Readers should seek independent professional tax and legal advice in respect of their particular circumstances before acting on any of the matters discussed. If you have any queries or would like further information relating to any of the above matters, please contact your usual contact in Dillon Eustace.

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