What tax incentives and credits are available for R&D activities?

Introduction

Ireland offers attractive R&D tax incentives and credits to encourage innovation. To qualify, companies must meet specific criteria and follow a structured application process. However, these incentives have limitations, and recent changes to Ireland’s R&D tax credit system may impact eligibility and benefits.

R&D Tax Incentives in Ireland

In Ireland, companies can benefit from a 25% tax credit on qualifying R&D expenditures, with no annual cap, reducing corporate tax liabilities.

• Ireland offers a 25% tax credit for R&D expenditures incurred by companies operating in Ireland .
• The credit applies to qualifying R&D spending that is incremental to a company’s existing R&D activities .
• Eligible expenditures include employee costs, materials used in R&D, and payments to third parties contracted to perform R&D activities .
• The credit reduces a company’s corporate tax liability. If the credit exceeds the tax liability, the excess can be carried forward indefinitely or refunded in cash over 3 years .

Qualification Criteria for R&D Tax Incentives in Ireland

To qualify for the R&D tax credit in Ireland, the R&D activities must :

• Seek to achieve scientific or technological advancement
• Involve the resolution of scientific or technological uncertainty
• Take place in fields of science or technology such as engineering, technology, medicine, biology, chemistry, physics, etc.
• Relate to the company’s current or future business Eligible R&D activities include :
• Basic research – experimental or theoretical work undertaken to acquire new knowledge without a specific application in mind
• Applied research – original work undertaken to acquire new knowledge with a specific application in mind
• Experimental development – work using existing knowledge directed at producing new products or processes

Application Process for R&D Tax Credits in Ireland

To claim the R&D tax credit, companies must :

• Maintain detailed records of R&D projects including time records of employees involved
• Track R&D expenditures such as employee costs, materials, and subcontractor fees
• Complete Form CT1 detailing R&D expenditure amounts
• Submit Form CT1 and supporting documentation with the company’s annual corporation tax return
• Provide invoices and records if requested by Ireland’s Revenue authority to verify expenditures The Revenue authority will review the R&D tax credit claim and issue a Notice of Assessment indicating the amount of credit granted.

Recent Changes to R&D Tax Credits in Ireland

Recent budget changes have :

• Expanded the definition of R&D to include certain cloud computing costs
• Increased the subcontractor limit from 5% to 15% of total R&D spending
• Allowed unused credits to be refunded in cash over 3 years rather than carried forward indefinitely These changes expand access to the R&D tax credit regime in Ireland.

In Summary

• Ireland offers a 25% tax credit for qualifying R&D expenditures incurred by companies . This is one of the most generous R&D tax credit regimes in Europe .
• Eligible R&D activities include basic research, applied research, and experimental development across scientific, technological, and engineering fields .
• Companies must track employee time and expenses related to R&D projects to claim the credit. There are limits on the amount of R&D expenditures that qualify .
• Companies must apply for the credit by submitting Form CT1 and supporting documentation with their annual tax return .
• Recent changes expanded the definition of qualifying R&D activities and allowed for greater subcontractor spending .