What types of R&D activities are eligible for tax relief?

Definition of R&D Activities under Irish Tax Law

Ireland offers an R&D tax credit under Section 766A TCA 1997 to incentivize investment in innovation. The credit aims to promote development of new or improved products, services, processes, techniques, and systems by companies based in Ireland. To qualify for the credit, R&D activities must seek to achieve scientific or technological advancement and resolve scientific or technological uncertainty through systematic, investigative, and experimental activities. 

Key criteria for eligible R&D activities in Ireland

• Must have a specific commercial objective for the company 
• Cannot be basic research without commercial goal 
• Must resolve scientific or technological uncertainty 
• Follow a systematic progression of work to resolve the uncertainty 
• Determine if results can be replicated 
• Record uncertainties, hypotheses, and results 
• Software development may qualify if it meets the above criteria. Improving existing software can qualify but routine updates and maintenance do not.

Eligible R&D Activities for Tax Relief

To qualify for the R&D tax credit in Ireland, activities must fall under the following categories:

• Experimental development to create new materials, devices, products, processes, systems or services or to improve existing ones.
• Scientific or technological planning and design for new or improved materials, devices, products, processes, systems or services.
• Testing, measurement, and analysis conducted to resolve uncertainty for experimental development activities.
• Clinical trials and regulatory activities associated with experimental development.
• Intellectual property protection related to R&D outcomes. Software development may be eligible if it meets criteria for resolving technical uncertainty through systematic, investigative activities with a commercial goal.

Industry-Specific Guidance on Eligible R&D

Ireland’s revenue authority provides industry-specific guidance on qualifying R&D activities for certain sectors:

• Manufacturing: New product development, process improvements, advanced materials, automation, robotics.
• Food and drink: New products, packaging, process enhancements, waste reduction, automation.
• Medical technologies: Devices, diagnostics, biopharma, gene therapies, nanomedicine.
• Financial services: Analytics, AI, blockchain, cybersecurity, open banking.
• Media, entertainment: Animation, AR/VR, visual effects, gaming, streaming.
• Energy, environment: Smart grids, storage, sensors, waste/water treatment.
• Construction: Materials, energy efficiency, project management systems.
• Transport: Fleet management, autonomous vehicles, electrification, composites.

Criteria for R&D Tax Relief Eligibility

To qualify for R&D tax relief in Ireland, activities must meet the following key criteria:

• Seek to achieve scientific or technological advancement
• Involve the resolution of scientific or technological uncertainty
• Follow a systematic, investigative and experimental approach
• Have a specific commercial objective for the company
• Record uncertainties, hypotheses tested, and results Eligible costs must relate directly to qualifying R&D activities.

Exceptions to R&D Tax Relief Eligibility

The following activities do not qualify for R&D tax relief:

• Research without a specific commercial objective
• Routine testing and analysis
• Research to improve existing knowledge not linked to a commercial goal
• Aesthetic modifications or stylistic changes
• Surveys and studies
• Efficiency improvements and cost reductions
• Capital expenditures on assets, equipment, or buildings
• Supporting activities like maintenance, administration, and management Companies should consult detailed guidance from the revenue authority on qualifying and non-qualifying activities and costs. Records must be kept to show which costs relate directly to eligible R&D.

Summary

• R&D tax relief in Ireland aims to incentivize companies to invest in innovation by providing tax credits for qualifying R&D activities.
• Eligible activities include experimental development to create new/improved materials, devices, products, processes, systems or services. Software development can also qualify if it meets certain criteria.
• Pure research without commercial objective does not qualify. The R&D must seek to achieve scientific/technological advancement for the company.
• Companies must track time and costs related to R&D activities and provide sufficient records to revenue authorities. Not all personnel or overhead costs may qualify.
• Common ineligible costs include capital expenditures, supporting activities like maintenance, and activities focused on style/aesthetics. Revenue authorities provide detailed guidance.

Conclusion

Ireland provides an R&D tax credit to incentivize innovation and technology development by companies based in the country. While software and scientific R&D qualify, companies must demonstrate commercial objectives and systematic resolution of uncertainties through investigative activities. Capital costs and routine improvements are excluded. Companies should consult revenue authority guidance and keep detailed records to support claims.