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Specified financial transactions: how Islamic finance is taxed in Ireland
Last updated 16 October 2026
Finance structured without interest, such as Shari'a-compliant products, is taxed like its conventional equivalent: the return is treated as interest.
Some financing is arranged so that no interest is paid or received, most often to comply with Shari'a law, which forbids interest. Instead the financier buys and resells an asset, leases it, or shares in profits. Part 8A of the Taxes Consolidation Act 1997 makes sure these arrangements are taxed like the conventional loans, deposits and investments they replace.
What is a specified financial transaction?
Section 267N defines three kinds:
- credit transactions, which work like a loan
- deposit transactions, which work like a deposit account
- investment transactions, broadly like a bond
Their terms must be those that independent parties dealing at arm's length would agree. The arrangement doesn't have to follow any faith-based principles to qualify: the rules apply to any financing that fits the definition.
How they are taxed
The return on a specified financial transaction, such as a Murabaha mark-up or a profit share on a deposit, is treated as interest for tax. All the tax law on interest applies to it. The legal form of the arrangement doesn't change; the aim is a level playing field between finance arrangements that are economically equivalent but structured differently.
Common structures
| Structure | What it resembles |
|---|---|
| Ijarah | a lease; the variant that ends with ownership passing to the customer works like hire purchase |
| Murabaha | cost-plus finance: the financier buys an asset and resells it at an agreed higher price, paid later |
| Mudaraba | a partnership where profits are shared and losses fall on the capital provider |
| Wakala | an agency arrangement, investing on behalf of a principal |
| Diminishing Musharaka | a partnership where one partner gradually buys out the other, often used for property |
| Sukuk | the equivalent of a bond |
Shari'a-compliant investment funds, leasing and insurance (Takaful) are generally taxed in the same way as their conventional equivalents. The existing rules for those sectors cover them, without needing Part 8A.
Telling Revenue
- financial undertakings notify Revenue of specified financial transactions on Form SFT1
- qualifying companies, Irish resident companies that issue investment certificates redeemed after a set period, use Form SFT2
Work it out
Sources
- Revenue: Corporation Tax: basis of charge (12.5% trading, 25% non-trading and excepted trades) (checked 25/10/2026)
General information, not tax advice. HeyPenny is not a tax agent.