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While in his Budget Day speech Minister for Finance, Paschal Donohue, made no mention of introducing a targeted dividend withholding tax (DWT) exemption for investment limited partnerships (ILPs), the Finance Bill, published on the 16 October 2025 (here), included such an exemption which has been requested by a number of industry bodies on which A&L Goodbody participates.
The new provisions contained in the draft bill propose extending the existing DWT exemptions in Section 172C of the Taxes Consolidation Act 1997 (TCA97) to include ‘relevant distributions’ received by an ILP, or an ‘equivalent partnership’ authorised in the EEA, where certain qualifying conditions are met. The new exemption, once enacted, will apply to relevant distributions made on or after 1 January 2026.
Background to introduction of exemption
ILPs are a key holding structure in Ireland for the holding of private assets. It is not uncommon for ILPs to structure investments through a number of lower-tier investment subsidiaries (SPVs), and for the profits of those SPVs to be returned to the ILP via dividend payments. This type of structure may be adopted for a number of reasons including to minimise risk by segregating assets, to meet regulatory requirements, etc. Under current rules, distributions by the Irish SPVs to the ILP would be subject to DWT, currently at a rate of 25%.
While it is generally possible for investors in the ILP to reclaim any DWT suffered on their portion of the ILP’s profits (assuming they themselves qualify for a DWT exemption), refund applications are time consuming and are generally regarded as an administrative burden which may make structures of this nature undesirable as investment vehicles. In contrast to ILPs, distributions paid to other types of regulated collective investment undertakings (e.g. ICAVs, unit trusts and investment companies) and common contractual funds are exempt from DWT.
The Funds Sector 2030 Final Report, published in October 2024 by a multi-disciplinary review team comprising staff from both the Department of Finance and Central Bank of Ireland, noted that following the introduction of the Investment Limited Partnership (Amendment) Act 2020, there was a steady increase in the number of ILP authorisations being granted in Ireland. The report made a number of recommendations to improve the attractiveness of Ireland’s ILP regime including a review of how the participation exemption could support the use of ILPs and a review of the scope of DWT exemptions for ILPs.
Meaning of ‘relevant distribution’ for new exemption
Not all distributions made by an Irish resident company to an ILP, or equivalent partnership, will qualify for the new DWT exemption. In order to qualify for the exemption, the distribution must be a ‘relevant distribution’, meaning that the ILP, or equivalent partnership, must be beneficially entitled to it and it must meet the following conditions, the:
New measures are subject to the outbound payment defensive measures
The new exemption remains subject to the application of the Outbound Payment Defensive Measures as introduced by Finance (No. 2) Act 2023. In brief, these rules, where applicable, can operate to restrict withholding tax exemptions on payments of interest, royalties or dividends by an Irish tax resident company where the recipient is an associated company that is resident in a non-EEA territory that is either a zero-tax territory or one which is listed as non-co-operative by the EU.
From an initial review of the draft bill, it appears that the intention is that the DWT exemption will not apply to any distribution to an ILP which is a relevant distribution for the purposes of the Outbound Payment Defensive Measures (as defined by Section 817X TCA97). There are complex provisions dealing with what types of entities will be viewed as associated for the application of the Outbound Payment Defensive Measures, and it remains to be seen whether any further refinements will need to be made to the draft provisions contained in the Finance Bill to ensure that the measures apply as intended in the case of distributions to ILPs.
New procedural simplifications
In addition to the introduction of the new exemption, provision is also made in the Finance Bill for the simplification of filing requirements for ILPs. ILPs will no longer be required to file a separate partnership return where the annual Form ILP1 has been filed with Revenue.
Interaction with participation exemption for dividends
In addition to the introduction of the new DWT exemption, the scope of the participation exemption which exempts Irish companies from corporation tax on foreign dividends, initially introduced in Finance Act 2024, has been extended in the draft Finance Bill. At present, the participation exemption is limited to dividends received from a 5%, direct or indirect, subsidiary in an EU/EEA state or jurisdiction with which Ireland has a double tax treaty (a ‘relevant territory’). Proposed amendments in the draft bill would extend the geographical scope of the exemption to include countries other than relevant territories which apply non-refundable withholding taxes on the full amount of the distribution made. The draft amendments also propose reducing the period in which the distributing company must be resident in a relevant territory prior to making a distribution in order to come with scope of the exemption from 5 years to 3 years.
Conclusion
These enhancements to the participation exemption, in tandem with the DWT exemption for ILPs, and the pre-existing CGT participation exemption for disposal of shareholdings should further encourage private equity investment through ILPs, by enabling the establishment of complex investment groups with both Irish and non-Irish SPVs holding investments. Intermediary Irish holding companies within these structures could benefit from participation exemptions on both their income and gains from qualifying investments in subsidiaries, while being able to return profits to the ILP free from withholding tax.
The new removal of DWT as a barrier to the use of Irish ILPs as a private asset investment structure is a welcome development.
For more information, please contact your usual A&L Goodbody Tax contact.
Date published: 20 October 2025
