Finance (No. 2) Bill 2026: Implications for Ireland’s financial services sector

The Bill contains several significant measures for Ireland’s financial services industry. These include the introduction of individual investment accounts, a further reduction in the tax rate applying to certain investment funds and life assurance products, revised taxation rules for fund units held through recognised clearing systems and substantial amendments to the interest deductibility and Pillar Two regimes.

Below are some of the key measures relevant to companies operating in the Irish financial services sector.

Individual investment accounts

Section 26 of the Bill introduces a new individual investment account regime intended to simplify the taxation of retail investments and encourage greater household participation in capital markets. The new regime will be subject to a commencement order.

An individual who is Irish tax resident, aged 18 or over and has a PPS number will be permitted to hold one individual investment account at any time. Annual contributions will be limited to €12,000.

Eligible investments will include:

• Shares and bonds admitted to trading on specified regulated markets.
• Investments in qualifying UCITS, including certain exchange-traded funds.
• Qualifying insurance-based investment products.

Income, profits and gains arising on eligible investments held within the account will be exempt from the taxes that would otherwise apply. Instead, investment account tax will be charged annually at 1% on the amount by which the account’s average annual value exceeds a €50,000 tax-free threshold. Losses on investments held within the account will not be available for offset against other income or gains.

Banks, credit institutions, investment firms, insurance undertakings and UCITS management companies satisfying the relevant regulatory conditions may register with the Revenue Commissioners as qualifying account providers. Providers will be responsible for operating the account, calculating and collecting the tax, making annual returns to Revenue and providing statements to account holders.

The regime presents an important product-development opportunity for the financial services industry. However, prospective providers will need to consider the operational impact of the daily valuation requirement, customer eligibility checks, contribution monitoring, product classification, transfers between providers and the extensive reporting and record-retention obligations.

Investment funds and life assurance products

Section 29 reduces the tax rate applying to income and gains from Irish investment undertakings and domestic life assurance policies from 38% to 35%. The same reduction will apply to certain foreign life assurance policies and equivalent offshore funds established in EU Member States, EEA states and qualifying OECD treaty countries.

The reduced rate will apply to relevant chargeable events, payments and disposals occurring on or after 1 January 2027.

This follows the reduction from 41% to 38% introduced in Finance Act 2025 and represents a further step towards reducing the tax differential between investment products and directly held investments. The change should enhance the attractiveness of regulated fund and life assurance products for Irish retail investors, although the continued absence of loss relief remains a relevant consideration.

Fund units held through recognised clearing systems

Section 28 introduces a new standalone regime for Irish-resident investors holding units in Irish investment undertakings through a recognised clearing system.

Under the current framework, an Irish investment undertaking is generally not required to operate investment undertaking tax where its units are held through a recognised clearing system. Irish-resident investors are instead required to self-assess by reference to the equivalent offshore fund provisions.

The Bill will bring these investments within a new section 739DA of the Taxes Consolidation Act 1997. Relevant events will include distributions, redemptions, disposals and the end of each eight-year investment period. Individual investors will generally be taxed at 35%, while companies that are not taxed under Case I or within the specified section 110 treatment will generally be taxed at 25%. A 60% rate may apply to investments in personal portfolio investment undertakings.

The amendment should provide a more coherent legislative basis for the taxation of Irish fund units held through market infrastructure. Investors will nevertheless remain responsible for identifying taxable events, calculating liabilities and satisfying the relevant self-assessment obligations.

Interest deductibility under section 247

Section 33 introduces a broad package of amendments to section 247 and the associated recovery-of-capital rules in section 249. The changes are the first legislative measures arising from the Department of Finance’s wider review of Ireland’s interest deductibility regime.

The measures include:

• Removing the requirement for an investing company and the relevant investee companies to have a common director.
• Determining relief by reference to the period during which a loan is used for a qualifying purpose, rather than denying relief solely because the loan was initially used for another purpose.
• Permitting certain recovered capital to be reinvested in another qualifying investment or used to repay another qualifying loan without automatically restricting relief.
• Preventing a single recovery of capital from reducing more than one qualifying loan by more than the amount actually recovered.
• Providing rules for allocating a capital recovery between multiple qualifying loans.
• Accommodating certain funding structures involving connected financing companies that borrow from unconnected parties
• Refining the restrictions applying to connected-party loans used to acquire assets from connected companies.

The revised rules will generally apply to accounting periods commencing on or after 1 January 2027, with particular provisions applying by reference to the date on which a loan is made or an asset is acquired.

The changes should simplify the operation of section 247 and remove several technical barriers encountered in private equity, acquisition finance and corporate holding structures. However, relief will remain dependent on the precise use of the borrowed funds, the application of recovered capital and the supporting records maintained by the investing company.

Interest limitation rules

Section 34 extends the deadline for making certain elections under Ireland’s interest limitation rules to two years after the end of the relevant accounting period. It also makes technical amendments to the interest-group and reporting-company provisions.

The extended election period should provide greater flexibility for groups assessing the application of the interest limitation rule after an accounting period has ended. Groups should nevertheless continue to evaluate elections as part of their corporation tax compliance process, particularly where the composition of an interest group or the allocation of interest capacity may affect the outcome.

Pillar Two

Section 72 makes extensive amendments to Ireland’s Pillar Two legislation to reflect the OECD Side-by-Side Package agreed in January 2026 and subsequent OECD administrative guidance published in May and September 2026.

The amendments provide for several new or extended safe harbours, including:

• An extension of the Transitional Country-by-Country Reporting Safe Harbour to fiscal years beginning on or before 31 December 2027, provided the fiscal year does not end after 30 June 2029.
• A Simplified Effective Tax Rate Safe Harbour.
• A Substance-based Tax Incentive Safe Harbour.
• An Ultimate Parent Entity Safe Harbour.
• A Side-by-Side Safe Harbour.

The Side-by-Side Safe Harbour may, subject to its detailed conditions, deem the Income Inclusion Rule and Undertaxed Profits Rule liabilities of a qualifying group to be nil. Irish constituent entities will, however, remain subject to Ireland’s qualified domestic top-up tax where applicable.

The Bill also contains detailed amendments dealing with financial services, including adjustments for insurance companies, distributions on Additional Tier 1 capital and the treatment of investment entities. Further changes address the GloBE Information Return, local accounting standards, filing obligations and penalties.

In-scope financial services groups should assess their eligibility for the new safe harbours and consider how the amendments interact with existing Pillar Two data, calculation and reporting processes.

VAT modernisation

Section 51 provides for the introduction of structured electronic invoicing and VAT digital reporting as part of the implementation of the EU VAT in the Digital Age initiative. The principal measures will take effect from 1 November 2028.

The initial mandatory application will cover accountable persons established in Ireland whose tax affairs were administered by Revenue’s Large Corporates Division (but not High Worth Financial Services Division) on 1 January 2027. The scope will expand from 1 November 2029 to include additional businesses, including persons engaging in specified intra-Community transactions.

In-scope businesses will be required to issue invoices in a prescribed structured electronic format for relevant domestic business-to-business and business-to-government supplies. Specified transaction data must also be transmitted electronically to Revenue.

Financial institutions should begin considering the potential systems impact, particularly where their activities include both VAT-exempt and taxable supplies or where invoicing is managed across multiple entities and platforms.

VAT treatment of financial services

Section 54 amends the domestic VAT exemption for transactions concerning current, deposit and savings accounts, payments, transfers, debts, cheques and other negotiable instruments. Debt collection and factoring are excluded from the exemption.

The explanatory memorandum states that the amendment aligns domestic legislation with the EU VAT Directive and that no change in practice is intended, as Revenue already applies the relevant EU rules.

Bank Levy

Section 61 extends the bank levy to 2027. The levy will continue to apply to Allied Irish Banks plc, EBS DAC, Permanent TSB plc and Bank of Ireland.

For 2027, the levy will be charged at 0.1025% of eligible deposits held by each institution on 31 December 2024.

Health insurance levy

Sections 59 and 60 revise the stamp duty levy applying to health insurance contracts. The levy will be calculated by reference to the age of the insured person on the date the contract is entered into or renewed, rather than the person’s age on the first day of the relevant accounting period.

Where an insured person’s cover ceases within 12 months, the insurer may claim a proportionate repayment based on the complete days remaining in that period. Where the levy was charged to the policyholder, the legislation also provides for the corresponding amount to be returned to that individual.

The amendments are due to take effect on 1 April 2027.

Preliminary tax

Section 74 increases the corporation tax threshold for a company to be treated as a small company for preliminary tax purposes from €200,000 to €350,000. The amendment will apply to accounting periods commencing on or after 1 January 2027.

Companies within the revised threshold may calculate preliminary tax by reference to 100% of the preceding accounting period’s liability rather than 90% of the current period’s liability. New companies with a first-period corporation tax liability below €350,000 will not be required to pay preliminary tax for that period.

The Bill also provides a corrective mechanism where a company pays at least 80%, but less than 90%, of its current-period liability by the preliminary tax date. If the company makes a top-up payment bringing the total to 100% within four months after the accounting period ends, it will be treated as having satisfied its preliminary tax obligation.

Capital Gains Tax

Section 36 reduces the general rate of capital gains tax from 33% to 31% for disposals made on or after 7 October 2026.

The reduction will be relevant to financial services businesses and investors disposing of assets that fall outside the corporation tax charge on trading income and outside the specific fund, life assurance and investment account regimes.

Advance pricing agreements

Section 68 provides that where an assessment is amended to give effect to an advance pricing agreement, any additional tax arising will be due no later than one month after the amended assessment is issued. The provision applies where the taxpayer’s original return contained a full and true disclosure of all material facts.

This amendment will be relevant to banking, insurance, asset-management and other multinational financial services groups participating in bilateral or multilateral advance pricing agreement processes.

Next steps

The Bill will now progress through the Houses of the Oireachtas and may be amended before it is enacted.

Financial services businesses should consider the impact of the proposed changes on existing investment products, financing structures, systems and compliance processes. In particular, prospective individual investment account providers will need to assess the operational requirements of the new regime, while fund managers, insurers and investors should review the revised tax rates and clearing-system rules. Groups with acquisition or holding structures should also examine the section 247 amendments, and in-scope multinational groups should evaluate the availability of the new Pillar Two safe harbours.

If you would like to discuss any of the proposed changes in further detail, please contact a member of our tax team.

This article is based on the Bill as initiated and the accompanying explanatory memorandum. The measures remain subject to amendment during the legislative process.