How Budget 2027 can build competitive advantage in innovation

Highly skilled people have more choice than ever about where they live and work. Meanwhile, entrepreneurs and investors continue to make decisions across borders, and local tax policy has a huge influence on these decisions.

Share-based remuneration and other equity incentives are a significant part of how companies attract, reward and retain talent, particularly in the tech and pharma sectors. There are a number of areas reviewed in the Indecon Report in 2024 that have not yet been implemented particularly in terms of the tax treatment of RSUs and aligning them with other OECD countries.

In addition, Ireland does not impose employer PRSI on equity incentives, and this is a very important competitive advantage for companies looking to reward senior talent. It is vital that Ireland continues to offer this incentive as we are seen as a high-cost country when compared with the likes of Singapore.

Of course, competitiveness is not just about attracting overseas companies to Ireland, we also need to ensure that Irish companies sending employees abroad are not penalised for seeking to become internationally recognised and competitive in global markets. Currently, if an Irish resident person creates a tax liability in the US or Canada, then they can get a foreign tax credit in Ireland for federal taxes imposed in those locations. However, if State or provincial taxes are imposed, these are not creditable in Ireland against Irish taxes paid so essentially, the individuals suffer double taxation on the state/provincial taxes paid overseas. In provinces in Canada these state taxes can amount to 18-20% so the tax loss for Irish residents is substantial and often has to be paid by the individual’s employer. It really is time for Irish Revenue in conjunction with the Department of Finance to allow these mandatory state taxes to be credited against Irish personal taxes.

The Government's economic strategy places a strong emphasis on labour supply, participation and skills development. Building on those ambitions, Budget 2027 can strengthen Ireland's position as a destination for globally mobile talent, entrepreneurs and investors.

The Budget 2027 Opportunity

• Review personal tax competitiveness.
• Enhance existing talent attraction measures.
• Improve treatment of long-term equity participation.
• Include state/provincial taxes in the definition of taxes for the purposes of claiming a Foreign Tax Credit in Ireland for overseas taxes paid.

Research is one of Ireland's strongest competitive assets, supporting high-value investment, attracting skilled talent and helping businesses develop new products, services and intellectual property. The Government's Impact 2030 Strategy places research and innovation at the centre of economic development ambitions.

The Government has identified productivity growth as one of the central drivers of future living standards. Research, innovation and technology adoption all play an important role in delivering that productivity growth. Budget 2027 can help ensure that Ireland's research supports remain aligned with how innovation is conducted today.

South Korea is a country leading in this field, consistently investing more than 4% of GDP in R&D. As one of the world's most R&D-intensive economies, it has translated sustained research investment into globally competitive industries spanning semiconductors, advanced manufacturing and digital technologies.

The Budget 2027 Opportunity

• Reform related-party R&D restrictions.
• Remove university outsourcing caps.
• Simplify administration.
• Improve speed and certainty of access.
• Invest in digital and research infrastructure.
• Build capacity for emerging industries.

Ireland has been highly successful in attracting international investment. Today, 16 of the world's top 20 technology companies have operations in Ireland, reflecting enduring appeal as a destination for high-value business activity.

The next stage of success relates to decision-making. IP ownership, product strategy and research leadership influence how and where investment and projects are allocated, and where commercial value lives over the long term.

When these activities happen in Ireland, their impact is much bigger than direct employment. They strengthen links between research and industry, support the development of specialised skills and increase the likelihood that decisions relating to future investment and expansion will also be made here. Budget 2027 presents an opportunity to increase Ireland’s attractiveness for high-value investments that can anchor long-term decision-makers in Ireland.

For best practice in this category, Singapore is in a separate league. More than 4,000 multinational companies operate in Singapore, including a large number of regional headquarters and leadership teams. Decades of investment in infrastructure and policy have been effective in positioning Singapore as one of the most influential business centres in the world.

The Budget 2027 Opportunity

• Strengthen incentives linked to IP creation and ownership.
• Support activities that locate strategic functions in Ireland.
• Reinforce Ireland's attractiveness for high-value mandates.

Successful Irish businesses make a distinctive contribution to the economy. They create employment, develop management talent, invest in communities and generate wealth that can be reinvested in future growth. Over time, they add depth and diversity to Ireland's enterprise landscape.

Increasing the number of local businesses will automatically strengthen Ireland's presence across a wider range of industries and create new opportunities for investment, employment and growth.

Successful Irish businesses depend on the combined efforts of entrepreneurs, investors, employees and customers.

Looking for best practice here, Sweden is a good benchmark. Successful entrepreneurs frequently reinvest in the next generation of businesses, creating a cycle of entrepreneurship, investment and growth. Combined with strong university-industry links and access to scale-up capital, this has led to the success of companies such as IKEA, Spotify, Klarna, Ericsson and Volvo. The result is a steady pipeline of businesses that grow from local startups into international market leaders.

The Summer Economic Statement highlights the importance of rewarding entrepreneurial activity. Budget 2027 presents an opportunity to support founders and growing companies that can become the next generation of Irish success stories.

The Budget 2027 Opportunity

• Make entrepreneurship and business ownership more attractive.
• Simplify and strengthen supports across the business lifecycle.
• Improve access to funding for start-ups and scale-ups.
• Encourage reinvestment and long-term growth.
• Supports for entrepreneurship and family business in Budget 2027 are examined in further detail here

Seven Priorities for Entrepreneurs and Family Businesses | Budget 2027 | EY - Ireland

Ireland has an excellent track record in attracting investment, particularly in sectors like technology, life sciences and financial services. There is no doubt that these sectors will remain critical to the Irish economy. However, maintaining competitiveness begs a more fundamental question: will the sectors and activities that have driven our success over the past few decades deliver to the same extent in the decades ahead?

The Summer Economic Statement talks about the need for Ireland to prepare for lasting changes in technology, trade, and geopolitics. AI is possibly the most obvious example of a technology with the potential to fundamentally change how businesses operate and where future investments are made.

The conversation around AI has matured. Businesses in Ireland don’t need to be convinced that AI is useful. The conversation has turned to identifying where AI can deliver significant commercial impact and how organisations can move from experimentation to enterprise-wide projects.

However, for Ireland there is a bigger, more strategic question. Every country is currently trying to establish its place in the global AI economy. Ireland is unlikely to compete directly with larger economies such as the United States or China in developing cutting-edge AI technologies, nor should we. What we need to do now is to identify the areas where we can create competitive advantage and build on them consistently over time. We need to decide what kind of AI leader we want Ireland to become.

Ireland's National AI Strategy highlights several areas in this regard, including applied AI innovation, enterprise adoption and trusted digital regulation. Ireland has an opportunity to capitalise on proven strengths in areas that align with existing capabilities, whether that is trusted and responsible AI, governance, or the application of AI within sectors where Ireland outperforms - like life sciences, financial services and advanced manufacturing.

Doing this would require an honest and critical assessment of the economic activities that have driven Ireland's success to date. Over-concentration in a smaller number of sectors can create risk, as technologies and geopolitical factors influence how sectors and businesses are run, and where money is invested. Strengthening competitiveness means supporting the sectors that are successful today, while also investing in an environment that allows the next generation of businesses and economic activity to emerge.

The Budget 2027 Opportunity

• Accelerate AI adoption through targeted supports for businesses, particularly SMEs.
• Expand AI, digital and advanced technology skills programmes across industry and higher education.
• Invest in digital, data and computing infrastructure.
• Support the development of trusted and responsible AI capabilities, building on Ireland's strength as a digital regulatory hub.
• Support the next generation of businesses and growth sectors that can diversify Ireland's sources of competitiveness and reduce concentration risk.

Closing thoughts

Ireland's economy has been built on a number of highly successful sectors and business models. They will remain central to the economy for many years to come. But maintaining competitiveness requires us to look beyond today's successes and consider what will drive growth in the decades ahead.

Budget 2027 presents an opportunity to do both: strengthen the foundations that have served Ireland well, while creating the conditions for new sources of competitive advantage to emerge. By investing wisely, Ireland can continue to compete and prosper as the world continues to evolve.