DONOMICS - Is Foreign Direct Investment Harming Irish Indigenous Business?
- Morita A Kelliher
- Apr 10
- 8 min read
Updated: Apr 10
Time to Talk Tax Diversification
Ireland has built a world-class hub for Foreign Direct Investment (FDI), attracting global giants like Apple, Pfizer, Google, Amazon, Microsoft, LinkedIn (owned by Microsoft), Intel, HP (Hewlett-Packard) and Meta in sectors like ICT, social media, pharmaceuticals, and finance.
Ireland’s economy is strong yet vulnerable; we lack a balanced tax base and a thriving indigenous business sector that can scale, hire, export, and reinvest locally. Our low corporate tax rate, skilled workforce, and low-tariff, open trade model have made us a magnet for multinational capital. Ireland’s open, low-tariff trade model benefits multinationals but may not offer the same support or protection to indigenous businesses trying to compete globally. Ireland's "Silicon Docks" is a who’s who of global tech giants , whose operations here are European headquarters (not just branches) in Dublin and while this foreign investment has brought jobs and infrastructure, it also underscores how crucial it is to nurture and scale our own Irish firms in tandem.
The Scale of Foreign Direct Investment in Ireland?
Over 80% of Ireland’s €24 billion corporation tax take comes from multinationals. While that revenue has helped fund vital public services, it leaves us exposed to decisions made far beyond our shores.
In 2023 alone, Foreign direct investment in Ireland decreased by €50.3 billion to €1.3 trillion. In 2023 Ireland received over €24 billion in net FDI inflows, making it one of the highest per capita recipients of FDI in the world. According to IDA Ireland, there are now over 1,800 multinational companies operating in the country, employing more than 300,000 people in ICT, social media, pharmaceuticals, and finance. State organisations such as; The Industrial Development Authority of Ireland (IDA), Enterprise Ireland, Science Foundation Ireland (SFI)(administering Ireland’s R&D funding), heavily promote investment inflows.
This includes major players in pharmaceuticals, tech, finance, and medtech—names like Apple, Google, Pfizer, and Meta, whose operations here are not just branches but often European headquarters.
A comparison of Replacing a Multinational Tax company with an Irish Indigenous Business
Let’s say an Irish SME is making a healthy net profit of €500,000 per year. At the standard 12.5% corporation tax rate, it would pay:
€500,000 × 12.5% = €62,500 in corporation tax.
To replace the €24 billion paid by multinationals:
€24,000,000,000 ÷ €62,500 = 384,000 companies like this would be needed, and that’s just one year.
Keep in mind that according to Revenue data (latest available) that Ireland has approximately 310,000 companies filing tax returns in Ireland and less than 6% of all companies are reporting profits over €500,000 in Ireland.
So we’re well short of the 384,000 needed even if every one of those high-performing companies doubled or tripled in size. Most Irish businesses are micro or small enterprises, with profits well below that level. Many operate in lower-margin sectors like retail, hospitality, or construction, and can't scale to multinational levels.
Irish companies need to grow bigger, with higher profits. It doesnt appear likely that the EU can afford to re-direct more funding into Ireland to grow Irish Businesses, so that we pay our own €24 billion tax in our economy. The European Fund for Strategic Investments (EFSI) has a dedicated SME fund offering up to a total of just €5.5 billion. Horizon Europe (2021-2027) is the European Union’s key funding programme for research and innovation, with a budget of more than €93.5 billion for all EU countries (€3.46 billon per country). However if we look at the demographics, the European Union (EU) has a population of approximately 449 million, while the United States has a population of around 347 million, meaning the EU's population is larger, and can be a bigger market for Ireland if we club together.
What This Tells Us
Ireland’s tax system is heavily concentrated on a few global giants that prop up a significant portion of the state’s income. While it’s great when things are going well, it creates huge vulnerability if even a few of those companies downsize or shift operations abroad.
It also highlights the importance of diversifying the tax base to support indigenous business growth so as to reduce overdependence on a small group of high-paying FDI firms.
In 2024, the European Union (EU) remained Ireland's largest export market, with goods exports totaling €88.5 billion, a 9% increase from the previous year. Within the EU, the top destinations for Irish exports were:
Germany: €20.1 billion
Netherlands: €23 billion
Belgium: €17 billion
These figures highlight the significant role the EU countries play in the Irish exports market within the EU, bearing in mind that the EU has a population that is roughly 1.3 times larger than the US.
In 2024, the United States was Ireland's largest export market, with goods exports totalling €72.6 billion. This accounted for approximately 32.4% of Ireland's total goods exported.
To compensate for the potential lost exports to the U.S., Ireland should boost trade within the EU by expanding partnerships, particularly in sectors like pharmaceuticals, technology, and agri-food. Targeting new markets in Eastern Europe, leveraging the EU’s Single Market, and positioning Ireland as a hub for green energy and innovation will help diversify exports. Additionally, increasing marketing efforts, strengthening supply chains, and advocating for favourable trade agreements can further enhance Ireland’s presence in the EU market;
Pharmaceutical and Life Sciences: These sectors are a significant part of Ireland’s export profile, and they have a strong demand within the EU. Ireland can intensify its investment in R&D, innovation, and marketing within the EU, particularly in countries like Germany and France, where healthcare expenditure is high.
Technology and Software Exports: Ireland’s thriving tech sector could be boosted by increasing exports to EU countries, particularly with demand for cloud computing, AI, and cybersecurity services.
Agri-food and Beverages: The EU remains a strong market for Irish food exports, such as dairy, meat, and beverages. Ireland could expand these exports to countries like Spain, Italy, and France, where Irish food products are already well-regarded.
Eastern European Expansion: Countries like Poland, Romania, and Hungary are experiencing rapid economic growth and expanding middle-class populations. Ireland could increase its trade with these countries by focusing on sectors such as tech, consumer goods, and construction materials.
Green Energy and Sustainability Initiatives: Ireland could also tap into the growing demand for renewable energy and environmental technologies within the EU. The European Green Deal promotes investment in clean energy, which presents an opportunity for Irish exports in renewable technologies.
Why Ireland Attracts So Much Foreign Direct Investment (FDI)?
A. Tax Incentives for (FDI)
Foreign Direct Investment (FDI) is attracted by a range of tax incentives that reduce the overall tax burden for foreign companies. These tax incentives make Ireland an attractive location for foreign investment, especially for companies looking for low tax rates, favorable IP treatment, and access to a skilled workforce.
Ireland, in particular, offers several incentives to attract FDI, especially for businesses in sectors such as technology, pharmaceuticals, and finance. The key tax incentives that attract FDI:
Corporate Tax Rate (12.5%):
Ireland offers a competitive corporate tax rate of 12.5% -15% on trading income, which is among the lowest in the EU. This is a key factor in attracting FDI, as it reduces the tax cost for companies operating in Ireland.
Knowledge Development Box (KDB):
The KDB offers a lower tax rate of 6.25% on profits arising from qualifying intellectual property (IP) assets. This is particularly attractive to companies engaged in R&D and innovation.
Research and Development (R&D) Tax Credit:
Ireland provides a tax credit of 25% for qualifying R&D expenditures. This credit is available to companies engaged in eligible scientific and technological research activities, effectively lowering the cost of R&D in Ireland.
Capital Allowances for Intangible Assets:
Ireland allows businesses to deduct capital allowances on intangible assets (such as patents, trademarks, and software) over a 15-year period. This encourages companies to invest in IP and other intangible assets in Ireland.
Holding Company Regime:
Ireland offers a favorable holding company regime, where dividends received by an Irish holding company from other EU subsidiaries may be exempt from Irish tax. There are also exemptions for capital gains arising from the disposal of shares in certain subsidiaries, making Ireland an attractive location for holding company structures.
Double Taxation Treaties:
Ireland has an extensive network of double taxation treaties with over 70 countries, helping to minimise withholding taxes on cross-border transactions. This reduces the tax burden on international businesses and makes Ireland an attractive destination for FDI.
EU State Aid Compliance:
Ireland offers various grants, investment supports, and regional development incentives, which are typically EU-approved and designed to support businesses in certain sectors or regions. These can help businesses reduce their upfront investment costs.
Employee Stock Options:
Ireland provides tax incentives for employee stock options, such as the "approved share option scheme," where gains from qualifying stock options are taxed at reduced rates, encouraging businesses to attract and retain talent.
Intangible Asset Securitisation:
Ireland allows for a tax-efficient framework for the securitization of intangible assets. This is attractive to multinational corporations with valuable IP, enabling them to manage their tax liability in a highly efficient manner.
Finance Act Provisions (e.g., IP Box, Exemption from Certain Capital Gains Taxes):
Ireland regularly updates its Finance Act to include provisions that help attract investment, such as exemptions for certain capital gains taxes on the disposal of assets, as well as tax incentives aimed at specific sectors like international finance and technology.
B. Favourable Socio Economic factors
EU Access: As a member of the EU, Ireland gives multinationals access to the European market.
Talent Pool: A young, educated, English-speaking workforce has proven a strong draw.
Business Environment: A pro-business regulatory regime and government incentives sweeten the deal further.
The Hidden Cost to Indigenous Businesses Being Squeezed
While the headline economic figures paint a glowing picture, the over-reliance on FDI has created a two-tier economy, multinationals on one level, and domestic businesses on another. This imbalance is disadvantaging indigenous Irish enterprises:
1. Talent Drain and Wage Inflation
Multinationals often offer salaries and benefits that local businesses simply can’t match. This leads to:
Brain drain from domestic firms as top talent is absorbed into better-funded MNCs.
Wage inflation, raising costs across the board and making it harder for SMEs to retain skilled staff.
2. Access to Property and Infrastructure
High FDI inflows have driven up commercial rents and housing prices, especially in urban centres like Dublin. Indigenous firms often struggle to secure affordable office or production space, or to house employees nearby.
3. Disproportionate Government Focus
State agencies and political attention frequently skew in favour of foreign-owned enterprises:
Supports and incentives (grants, tax credits) often lean more heavily towards multinationals.
Policy development is often driven by the needs of large FDI employers, leaving indigenous businesses feeling sidelined.
4. Stifled Innovation Ecosystem
While multinationals bring in R&D investment, they don’t always collaborate meaningfully with local start-ups or SMEs. Indigenous companies can find it difficult to compete for research funding or scale their operations when overshadowed by global giants.
How to incentivise Irish companies to grow more Towards a More Balanced Economy
Ireland’s economic success story is heavily intertwined with FDI but to future-proof that success, more investment must be channelled into supporting indigenous enterprise. Some policy suggestions include:
Enhanced tax reliefs for Irish-owned businesses - lower Tax, VAT and Employment Tax
Increased Enterprise Ireland funding to help local businesses scale internationally, R&D funding
Education and training incentives tailored to SME needs, helping them upskill competitively.
Rebalancing infrastructure development to ensure regional towns and cities offer fertile ground for local business growth not just foreign investment zones.
Fair Competition - Implement procurement policies that prioritise Irish-owned SMEs and Regulatory balance to prevent market crowding by large multinationals
Final Thoughts
Ireland’s FDI model has delivered undeniable economic dividends but it shouldn’t come at the expense of Ireland's own homegrown potential. Indigenous businesses are vital to it's economic diversity, community sustainability, and long-term resilience. As we look to the future, a more balanced industrial strategy that nurtures local enterprise is not just desirable, it’s now essential.
April 2025
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