Participation exemption for certain foreign distributions

A company may receive a dividend or other type of distribution from a foreign subsidiary. This distribution is exempt from Corporation Tax (CT) where the qualifying conditions for the participation exemption are satisfied.

The exemption applies to a relevant distribution made by a relevant subsidiary to a parent company on or after 1 January 2025. The parent company must hold a qualifying participation in the relevant subsidiary.

Who can claim the exemption?

A parent company can claim the exemption. This is a company that is either:

• Irish tax resident
• or
• resident for foreign tax purposes in an European Economic Area (EEA) country and not generally exempt from foreign tax.

Foreign tax refers to a tax that corresponds to Irish corporation tax. That tax must apply to the income, profits and gains of a resident company at a nominal rate greater than zero per cent.

What is a qualifying participation?

The parent company must hold at least five per cent of the ordinary share capital of the relevant subsidiary. This is referred to as a qualifying participation. This must be held for a continuous period of at least 12 months. This period must include the date the relevant distribution is made.

What is a relevant subsidiary?

The company making the relevant distribution must be:

• resident for foreign tax purposes in a relevant territory,
• and
• not generally exempt from foreign tax.

These conditions must be met on the date the relevant distribution is made and throughout the preceding five years.

A relevant territory is an EU or EEA country or a country with which Ireland has a double tax agreement. It does not include a country on the EU list of non-cooperative jurisdictions.

What distributions qualify for exemption?

A relevant distribution is a distribution made in respect of a relevant subsidiary's share capital. The distribution can be made out of the profits of the relevant subsidiary.

Alternatively, the distribution can be made out of other assets of the relevant subsidiary. This is provided that any gain on a sale of the underlying shares, on the date the distribution is made, would qualify for the section 626B exemption for chargeable gains.

The distribution must be regarded as income (and not capital) in the hands of the parent company. Broadly, the parent company must otherwise be chargeable to tax on the relevant distribution under Case III of Schedule D. Distributions received as trading income are excluded.

The distribution cannot be deductible for foreign tax purposes.

How to claim the participation exemption?

A company should use the Revenue Online Service (ROS) to claim the participation exemption on their CT return.

A company that receives a foreign distribution can choose between claiming:

• the participation exemption
• and
• a double tax credit for foreign tax paid.

If a claim is made for the participation exemption, then all relevant distributions from all relevant subsidiaries will be exempt for that accounting period. A claim cannot be made on a per dividend or per subsidiary basis.

See Tax and Duty Manual Part 35-02-11 for further information on qualifying conditions.