Ireland Outlook 2025

As we look back on 2024, it's clear that in spite of headwinds, many Irish businesses have experienced a year of notable growth. The Irish economy saw steady growth of 2.4% in modified domestic demand (MDD). Additionally, Ireland’s unemployment rate remained stable at 4.3%, marking effective full employment. That said, the year wasn't without its hurdles. While headline inflation stabilised in 2024, persistently high inflation rates in some economic sectors and concerns over global geopolitical dynamics posed significant challenges to businesses and individuals throughout the year.

For 2025, The European Commission's Economic Forecast predicts a slow start to economic growth, primarily due to a contraction in the multinational sector during the first half of the year. However, it forecasts a robust rebound, with growth expected to reach 4% overall in 2025 and 3.6% in 2026, supported by a strong labour market, low headline inflation, and a favourable external environment. Headline inflation is projected to remain low, with rates of 1.4% for 2025 and 1.9% for 2026. Additionally, the unemployment rate is predicted to remain steady over the next two years.

Despite these positive indicators, the outlook is clouded by growing uncertainty and downside risks linked to geopolitical tensions, including widespread political change and the potential for increased protectionist measures, particularly from the US, posing a significant threat to global trade. Historically, US multinational corporations have been a source of job growth in Ireland, establishing operations in Ireland for a number of reasons including a favourable tax environment, pro-business environment, and highly skilled workforce. However, the potential impact to Ireland of the US Administration’s new policy outlook could be significant, in particular the intention to implement measures which aim to attract multinational jobs back to the US. This shift could influence the decisions of companies with significant operations in Ireland, though the full affect remains to be seen.

Amidst prevailing uncertainties, Ireland has once again demonstrated its remarkable economic resilience. As highlighted in Budget 2025, Ireland is currently enjoying a robust period of fiscal performance. A government surplus of €39.1 billion was record in 2024 , bolstered by bumper corporation tax returns. Tax revenues have seen a significant increase since the onset of the pandemic. The Department of Finance forecasts that these revenues will stabilise by 2026.

Company Law Reform

In the year ahead, one consideration for companies will be the changes introduced by the recent reform to the Companies Act 2014. These updates are designed to modernise corporate governance and streamline operations. Notable changes include Section 43A, which allows instruments under seal to be executed on separate counterparts, and Section 176A, which permits fully virtual or hybrid general meetings. Companies will need to review and potentially amend their constitutions to align with these new provisions.

Additionally, Section 1087G simplifies the process for setting record dates for adjourned meetings, while Section 462 facilitates domestic mergers involving LTDs or DACs. The updated act also includes new grounds for involuntary strike-off and enhanced powers for the Corporate Enforcement Authority (CEA).

Changes for the Financial Services Sector

2025 will see some significant changes introduced for the financial services sector in Ireland. A key change is the introduction of a participation exemption for foreign dividends starting January 1, 2025. This move is expected to bolster Ireland's global competitiveness, enhancing its appeal as a prime destination for investment and business operations. The participation exemption will allow qualifying distributions made on or after January 1 to be exempt from corporation tax for the recipient. Companies can opt into this exemption annually, and it will apply to all eligible foreign distributions received during the elected accounting period. This shift is anticipated to further solidify Ireland's standing as a favourable business environment.

The Digital Operational Resilience Act (“DORA”) will be at the forefront of companies’ minds as it set to take effect from January 2025. DORA is applicable to in scope entities within the financial services sector, including both traditional and digital banks, e-money and payment institutions, insurance and reinsurance companies, asset managers, credit institutions, and private equity firms. This regulation mandates that these organisations document the oversight and management processes of critical third-party providers within their ICT risk management frameworks. DORA aims to strengthen financial institutions’ procedures and policies for managing third-party relationships, ensuring thorough due diligence and effective response strategies in the event of third-party incidents.

On April 2024, the European parliament adopted the proposed text for the sixth Anti-Money Laundering Directive (“AMLD6”), a regulation on Anti-Money Laundering (“AML”) and Counter-Terrorist Financing ("CTF", together, the “Single Rulebook”) and a regulation for the establishment of a regulatory authority for AML. AMLD6 aims to enhance national AML/CFT frameworks by focusing on beneficial ownership, Financial Intelligence Units’ (“FIUs”) responsibilities, and supervision. It promotes better cooperation between national authorities and FIUs. The Single Rulebook Regulation will standardise AML/CFT rules across the EU. It will incorporate and enhance provisions from AMLD4, making them directly applicable and repealing the Fourth and Fifth Directives. This harmonisation will address the fragmented approaches currently taken by EU Member States. The scope of obliged entities will expand under the Single Rulebook to include all crypto-asset service providers, crowdfunding service providers, mortgage and credit intermediaries, and traders of high-value goods like jewellery, vehicles, and aircraft. Beneficial ownership provisions will be clarified, maintaining the 25% ownership threshold but ensuring greater transparency. The Single Rulebook will take effect three years after its entry into force, except for football agents and clubs, which will have five years to comply.

CSRD

The Corporate Sustainability Directive (“CSRD”, the “Directive”) was formally adopted by the European Commission on 31 July 2023. The Directive introduces sustainability reporting standards to further enhance the disclosure of climate and environmental data to in-scope companies across Europe. The new rules came into effect on a phased basis from 1 January 2024, and many Irish companies in scope of phase 1 have already began reporting. The scope of the CSRD is set to expand further in 2025 to large listed private companies and consolidated groups that meet at least two of following criteria:

• More than 250 employees;

• Balance sheet of more than 25 million euros; or

• More than 50 million euros in turnover.

In 2024, alongside CSRD, the European Commission introduced the Corporate Sustainability Due Diligence Directive (“CS3D”), a key initiative aimed at fostering sustainable and responsible behaviour in companies’ operations and across their global value chains. CS3D entered into force on 25 July 2024 and aims to harmonise the regulatory framework that mandates certain companies to implement comprehensive due diligence processes. CS3D will ultimately apply to companies meeting specific criteria, impacting approximately 6,000 EU companies and 900 non-EU entities with operations in the EU. CS3D includes provisions to facilitate compliance and minimise the burden on companies, both within the scope and throughout the value chain. While micro companies and SMEs are not directly covered by the proposed rules, CS3D offers supportive and protective measures for SMEs, which may be indirectly impacted as business partners in value chains. Member States have until 26 July 2026 to transpose CS3D into national law. One year later, on 26 July 2027, the rules will start to apply to companies on a phased basis.

Investment Screening

From 2025 onwards, companies need to keep a close eye on the Screening of Third Country Transactions Act 2023 (the “Act”), commencing 6 January. The Act aims to enhance the powers of the Minister for Enterprise, Trade and Employment to address potential security and public order threats from specific foreign investments.

Businesses planning investments should review the Act's provisions to determine if their transactions will require notification. Developed in line with the EU FDI Screening Regulation 2019/452, this Act introduces Ireland's first inward investment screening mechanism, impacting sectors such as:

• Critical infrastructure (energy, transport, water, communications, etc.)

• Critical technologies (AI, robotics, semiconductors, cybersecurity, etc.)

• Critical inputs (energy, raw materials, food security)

• Sensitive information (personal data)

• Media freedom and plurality

The Act is set to be a major consideration for companies in 2025, ensuring they align their investments with Ireland's national security priorities.

Pillar Two

Another topic that remains on the agenda in 2025 is the OECD’s BEPS Pillar 2 project. The Pillar Two rules aim to ensure that large corporate groups maintain a minimum effective tax rate of 15%. Large groups are defined as multinationals and domestic businesses with a global annual turnover exceeding €750 million in at least two of the preceding four years. The 15% effective tax rate came into force on 31 December 2023. The Pillar Two framework is comprised of two domestic rules – the Income Inclusion Rule (“IIR”) and the Under Taxed Profits Rule (“UTPR”) which are collectively referred to as the Global Anti-Base Erosion Rules, and one treaty-based rule – the Subject to Tax Rule.

Many aspects of Pillar Two were effective in 2024, however certain remaining aspects will roll out in 2025. In Ireland, the provisions of the IIR and Qualifying Domestic Minimum Top-Up Tax (“QDMTT”) came into effect on 31 December 2023. IIR gives top-up taxing rights to the ultimate parent entity of the group, while QDMTT allows countries to collect and administer taxes within the jurisdiction where the income is generated. UTPR is a domestic rule that acts as a backstop to IIR for the collection of taxes under Pillar Two. UTPR gives top-up taxing rights to the constituent entities in the jurisdictions that have implemented the UTPR and is anticipated to take effect in Ireland at the beginning of 2025.

Irish entities that fall under the IIR, QMDTT, and/or UTPR must register with Revenue for each relevant tax within a year after the end of the first fiscal year they are subject to that tax. For instance, a company with a fiscal year ending on December 31 that is liable for the IIR and QMDTT in 2024 must register for these taxes by December 31, 2025. If the company becomes liable for the UTPR in 2025, it must register for the UTPR by December 31, 2026.

Take Aways

In conclusion, Ireland's economic outlook for 2025 is marked by both optimism and caution. The resilience demonstrated by Irish businesses in 2024, despite facing inflation and geopolitical challenges, sets a strong foundation for the future. While the European Commission forecasts a temporary dip in GDP, the anticipated robust rebound in 2025, supported by a strong labour market and lower inflation, is encouraging.

However, uncertainties remain, particularly with geopolitical tensions and potential protectionist policies from the US. The ECB's monetary policies and the introduction of significant legislative changes, such as the BEPS Pillar 2 rules and updates to the Companies Act, will play crucial roles in shaping the business environment.

As Ireland continues to adapt to these evolving dynamics, the commitment to maintaining a favourable business climate, coupled with strategic reforms in corporate governance and financial regulations, will be key to sustaining growth and competitiveness in the years ahead.

For more information, please contact Niamh Manning.