Ireland: Innovation incentives overview

The R&D tax credit (RDTC) is a key innovation incentive in Ireland.

Other incentives include:

• The Knowledge Development Box (KDB) – reduced corporate tax rate of 10% (down from the standard 12.5%) for profits earned from qualifying R&D assets
• Digital Gaming Tax Credit - relief for the digital gaming sector for costs incurred in the development of digital games
• Capital Allowances for Specified Intangible Assets (patents, copyrights, trademarks and know-how)
• Grants – Government bodies such as Enterprise Ireland and the IDA (Industrial Development Authority) provide a range of innovation-related grants.

The R&D tax credit is worth up to 30% of qualifying expenditure. This credit is available in addition to the trading deduction available for R&D spend. This can result in a net subsidy of 42.5% (i.e. 12.5% corporation tax deduction + 30% R&D tax credit).

Are there specific industries that qualify or are there reliefs that require a particular industry focus?

No, incentives are available for companies in all industries that are engaged in R&D in a field of ‘science and technology’.

Do you have to apply for incentives prior to conducting the research or claiming the benefit?

Companies making their first ever claim, or those who have not claimed the R&D tax credit (RDTC) in any of the three preceding periods are required to notify the Irish Revenue Commissioners of their intention to make a claim. This notification must be submitted at least 90 days before the claim is made.

Are there specific documentation or reporting requirements for claiming incentives?

Yes. Companies are obliged to keep relevant documentation to support their R&D claim in the event of an audit by the Irish Revenue Commissioners.

The R&D tax credit is worth up to 30% of qualifying expenditure. This credit is available in addition to the trading deduction available for R&D spend. This can result in a net subsidy of 42.5% (i.e. 12.5% corporation tax deduction + 30% R&D tax credit).

Claims must be made within 12 months of the end of the accounting period to which the claim relates.

Only available to corporate entities. R&D tax credits may be used for all size of companies. Companies of any size are eligible. They do not need to be profit-making or have corporation tax liabilities. The credit is available in the first instance in the form of refundable instalments. Companies with tax liabilities can opt to offset the credit against these liabilities.

Qualifying R&D activities must meet all the following conditions.

• There must be systematic, investigative or experimental activities undertaken.
• They must be in a field of science or technology.
• The activities must be undertaken either as basic research, applied research or experimental development.
• The activities must seek to achieve scientific or technological advancement in the field of science or technology. The test relates to knowledge or capability that should be reasonably available to the company or a competent professional working in the field.
• The activities must seek to resolve scientific or technological uncertainty.

Do the R&D activities have to be performed within the country to qualify? If not, is there a distinction made between the country where the claimant company is resident, EU countries, and non-EU countries?

The company must undertake qualifying R&D activities within the European Economic Area (EEA) or the UK.

There is no territorial restriction for subcontracted R&D where it is not undertaken by a third level institution / university.

Where a third level institution / university is the subcontracted party, the R&D must be undertaken within the EU (or the UK).

Does the intellectual property need to reside in the country granting the incentives or in the company claiming the incentives?

No.

Does the tax authority have to review the resultant developments to allow a deduction or credit?

No. A claim filed could be allowed without review.

Salaries (also national insurance, employer pension), contractors, materials, overheads, cloud computing, plant and machinery, other capital expenditure.

Can the expenditure be revenue and / or capital in nature?

Yes, it can be either. It makes no difference.

Are the incentives temporary or permanent?

Permanent.

How is the benefit obtained?

The benefit is paid as a cash credit in instalments over three years:

• 50% in the first year
• 30% in the second year
• 20% in the third year

Claimants can choose to offset this against their corporation tax liability, if any, but only up to the amount of tax credit they are due to receive that year.

Are the incentives incremental in nature or volume-based?

Actual expenses incurred.

Are there general rules for estimating the value of the incentives?

Expenditure must be “incurred in the carrying on of R&D”, as distinct from “in connection with R&D” or “related to R&D”.  Additionally, it should not be confused with expenditure incurred to enable a company to carry on R&D. The phrase “in the carrying on” is narrower in scope.

The recommended approach for an R&D claim involves:

• Determining the qualifying projects.
• Determining the qualifying expenditure.
• Preparing a technical R&D report to document the R&D activities undertaken.
  • There is no requirement to prepare a technical R&D report, but it is recommended practice. The report can be provided to the Irish Revenue Commissioners in the event of a review into the RDTC claim.
• Filing the RDTC claim on the corporation tax return (CT1) for the company.

Is there a cap on the maximum level of benefit that can be received per year, per company, or for all the qualifying taxpayers together?

No.

Are tax credits refundable?

The benefit is paid as a cash credit in instalments over three years:

·         50% in the first year

·         30% in the second year

·         20% in the third year

Claimants can choose to offset this against their corporation tax liability, if any, but only up to the amount of tax credit they are due to receive that year.

Where the credit amounts to </= €50,000, it is repayable in full in the first year. From 01/01/25, where the credit amounts to </= €75,000, it is repayable in full in the first year.

Can surplus incentives be carried back or forward and used in years other than the origination years?

They can only be carried forward.

Are there any other types of limitations?

Claimants can choose to offset the incentives against their corporate tax liability, if any, but only up to the level of tax credit they are due to receive that year.

Relief for subcontracted R&D will be restricted to 15% of the expenditure incurred by the company itself on R&D activities or €100,000, whichever is the greater, subject to the company incurring at least the same level of expenditure on qualifying activity which it carries out itself.

Are the R&D costs deductible when deriving taxable income?

R&D expenses incurred can be deducted to reduce taxable income.

Are costs required to be capitalized for tax purposes?

There is no requirement for costs to be capitalised.

The RDTC regime is a key source of innovation funding. Of crucial importance is the 12-month deadline after the end of the accounting period to file the claim. The claim cannot be filed beyond this date.