Ireland has slashed its corporation tax to just 6.25%, but only for those companies which can demonstrate genuine innovation, employing highly skilled people.
"Fostering innovation in Ireland will be critical to our new economic model," finance minister Michael Noonan told the Irish parliament.
Ireland’s already competitive corporate tax stands at 12.5%.
The lower rate will apply to those firms which can show that earnings are tied to patents and copyrighted software which were created through research and development conducted in Ireland.
The policy has been nicknamed the ‘knowledge development box’.
The objective is to get local as well as international companies to hire skilled employees and promote innovation.
It is also an attempt to wean international companies away from basing just some parts of their operations in Ireland in order to qualify for low corporation tax.
Responding to complaints about internationals avoiding taxes, the Irish government will introduce rules making companies report their finances and tax payments for each country in which they operate.
The move comes at a time when the European Commission is looking into what might be sweetheart tax deals between certain countries and a number of international firms, such as Google and Apple.
Earlier this year, European officials started investigating ideas around a harmonised EU corporation tax rate.
