Interest Limitation Rule in Ireland: Revenue Guide for Companies

The interest limitation rule (ILR) in Ireland restricts how much net interest a company can deduct against its corporation tax profits in a period, with the excess deferred rather than lost. It implements the EU Anti-Tax Avoidance Directive (ATAD) and is found in Part 35D of the Taxes Consolidation Act 1997. This guide explains the concept and who is affected, for finance directors, tax teams and advisers, including those in Dublin-based groups. It is general information, not tax advice. The rule sits alongside other anti-avoidance rules; our guide to the general anti-avoidance rule (GAAR) covers the wider picture.

What the rule does

According to Revenue's page on the Interest Limitation Rule (published 23 June 2026), the rule limits base erosion from excessive interest deductions. It caps the maximum net interest deduction at 30% of EBITDA, and interest above the cap is not deductible in the current year. Its deductibility is deferred until there is enough interest capacity. The rule applies to accounting periods commencing on or after 1 January 2022.

Revenue's Tax and Duty Manual Part 35D-01-01, "Guidance on Interest Limitation" (last updated December 2025), says the rules were introduced by Finance Act 2021 and implement Article 4 of the ATAD. It stresses that the rules "do not grant deductibility for interest which would not otherwise be allowed". In other words, the ILR is an additional restriction layered on top of the ordinary rules on whether interest is deductible at all.

The percentage and amounts in this guide come from those dated Revenue pages. They are legislative parameters and can change, so check the current manual on the day.

What the Directive says

The text of Council Directive (EU) 2016/1164 on EUR-Lex, in Article 4, caps the deduction of "exceeding borrowing costs" at 30% of EBITDA. It also provides for a safe harbour, for full deduction for standalone entities, for Member State options on pre-17 June 2016 loans and certain long-term public infrastructure loans, for group-ratio and equity-escape options, and for carry-forward and carry-back options. Irish law uses some of these options and Revenue's manual is the place to see which. This guide covers the original 2016 text of the Directive only.

Who is affected

Revenue's page says the rule applies to all corporate taxpayers, subject to exemptions. It lists:

• companies whose net interest expense is within the de minimis amount (the page gives EUR 3 million);
• standalone companies with no associated enterprises, no group companies and no permanent establishments outside Ireland;
• interest on borrowings for long-term public infrastructure projects; and
• interest on legacy debt, meaning terms agreed on or before 17 June 2016.

The manual describes the de minimis test in more technical terms, by reference to "exceeding borrowing costs" for a 12-month period, pro-rated for shorter periods. It describes a standalone entity as an Irish tax-resident company that is not in a worldwide group, has no associated enterprises and has no non-Irish permanent establishment. Where the plain-English page and the technical manual use different wording, follow the manual and the legislation.

Key terms in plain English

The manual defines a number of terms that appear in any ILR calculation:

• Interest equivalent: interest plus amounts economically equivalent to interest, such as certain discounts, the finance element of finance leases and fees directly connected with raising finance.
• Exceeding borrowing costs: deductible interest equivalent, less deductible interest equivalent on legacy debt and less taxable interest equivalent, where the result is zero or more.
• Tax-EBITDA: an earnings measure built from the company's relevant profit or loss, with the adjustments set out in the legislation. The manual says a negative result is treated as nil.
• Allowable amount and disallowable amount: the allowable amount is tax-EBITDA multiplied by the EBITDA limit. Any exceeding borrowing costs above that are the disallowable amount.
• Deemed borrowing cost: the disallowed amount that is carried forward.

The manual works through numerical examples. Read them in the manual itself, because they depend on the tax rates and adjustments applying to the particular company.

Groups, elections and single company worldwide groups

The manual says a "relevant entity" is either a company or an interest group. Companies in a worldwide group or a section 411 group may elect to form an interest group. It states the election lasts at least three years, a withdrawal is only possible after that period and a company can belong to only one interest group. The manual says the election is made on Form CT1 or, for funds, on the Form ILR Election (Fund).

A company that is not in a worldwide group, not in an interest group and not a standalone entity is described as a single company worldwide group (SCWG). The manual also refers to a group ratio election, under which the EBITDA limit is the group ratio rather than 30%.

Disallowed interest and spare capacity

Disallowed interest is not lost. The manual says the amount carried forward as a deemed borrowing cost can be relieved in later periods, subject to spare capacity. It also says total spare capacity may be carried forward for up to 60 months from the end of the period in which it arises. Those carry-forward periods are details to confirm in the current manual.

Anti-avoidance and the wider picture

The manual says Part 35D applies after all other Tax Acts and Capital Gains Tax Acts provisions, except the GAAR. It also says whether something is an interest equivalent depends on the substance of the arrangement taken as a whole. For groups, the pricing of intragroup loans is a separate question; our transfer pricing guide for finance and tax professionals covers that area.

Practical points for finance teams

Our suggestion: build a simple annual checklist.

• Identify whether each company is standalone, in a worldwide group or an SCWG.
• List all debt and finance arrangements, including leases and hedges, and flag any agreed on or before 17 June 2016.
• Calculate the position for each relevant entity before the return is prepared, and record the carry-forward balances.
• Diarise the three-year minimum period for any interest group election.
• Keep compliance in good order generally; a tax clearance certificate is a separate topic, covered in our guide to tax clearance certificates for Irish businesses.

What this guide does not cover

This guide does not cover the equity escape, the detailed group ratio calculation, foreign currency rules, preliminary tax interaction or the appendices of the manual. Always check the full Revenue manual and the legislation.

Learnsignal's offices are off Baggot Street in Dublin, and we offer in-person training from there. For current details, see our CPD pages.

Frequently asked questions

Is interest disallowed under the ILR lost forever?

No. Revenue's page says deductibility is deferred until there is sufficient interest capacity, and the manual describes carrying the disallowed amount forward as a deemed borrowing cost.

Does the rule apply to every company?

It applies to all corporate taxpayers subject to the exemptions Revenue lists, including the de minimis amount, standalone companies, long-term public infrastructure projects and legacy debt.

Does the ILR make non-deductible interest deductible?

No. The manual says the rules do not grant deductibility for interest that would not otherwise be allowed.

How are group elections made?

The manual says elections are made on Form CT1 or, for funds, on the Form ILR Election (Fund). The election lasts at least three years.

Tax rules change, so treat this as a starting point and confirm the position with Revenue's current guidance or your tax adviser.