About R&D Tax Credits in Ireland
R&D tax credits in Ireland offer innovative businesses a 25% credit on all qualifying R&D expenditure (although in the 2023 Budget, Revenue announced that this would increase to 30% for 2024 expenditure).
This credit is additional to the normal 12.5% corporate tax deduction, therefore resulting in a 37.5% benefit for R&D activities.
Qualifying R&D Businesses
To qualify for the Revenue’s R&D tax credit incentive, a company must fulfil the following criteria:
- Be within the charge to Irish tax
- Undertaking R&D in the European Economic Area (EEA) or the UK
- Any R&D expenditure cannot qualify for tax relief in another territory
Qualifying R&D Tax Credit in Ireland Activities
When a business is creating a new material, product, process, system or service through a process of research and development, they can only qualify for R&D tax credit relief in Ireland, if their activities meet the following conditions:
1. Systematic, Investigative or Experimental Activities
Simply put, this means activities need to be undertaken in a logical, planned sequence, while maintaining detailed records, from the start to the end of the R&D projects.
2. Be in The Field of Science or Technology
Qualifying R&D categories include natural sciences, engineering and technology, medical sciences and agricultural sciences.
3. Involve One of The Three Research Categories
The research carried out must be either basic, applied or experimental.
- Basic research or fundamental research is experimental or theoretical and aims to extend scientific or technical knowledge of a phenomena.
- Applied research, which seeks a solution to a specific practical challenge.
- Experimental development “is systematic work, drawing on existing knowledge gained from research and practical experience, that is directed to producing new materials, products and devices; to installing new processes, systems and services; or to improving substantially those already produced or installed.”
4. Seek to Make a Scientific or Technological Advancement
- Any qualifying R&D project must seek to achieve an overall advancement in the science or technology knowledge in a field, not just the company’s own state of knowledge.
- If a competent professional could reasonably create a solution for the scientific or technological uncertainty, the project would not qualify.
- As long as a company is “seeking” to achieve an advancement, if it is not fully realised or maybe even failed, the project could still qualify.
5. Involve the Resolution of Scientific or Technological Uncertainty
On the outset of a project, there should be two uncertainties:
- Uncertainty as to whether a goal is achievable.
- Uncertainty in relation to alternative methods that will meet the goals such as the budget and production requirements.
Qualifying R&D Tax Credit Costs
The tax credit is available in respect of expenditure incurred wholly and exclusively in the carrying on by the company of qualifying R&D activities. Costs can include:
Employee and Staff Costs
A proportion of the salary, pension contributions, bonus payments, health insurance etc. costs of employees who are actively involved in an R&D project could qualify for the incentive. This is calculated based on how much of an employee’s time is spent on R&D, if they spend 50% of their time, then 50% of those costs would qualify.
Material Costs
To qualify, materials have to be transformed or consumed during the R&D process, this can include:
- Utilities – fuel, heating, electric and water
- Consumables such as chemicals or electrical components
Capital Expenditure Costs
There are two elements of capital expenditure that could qualify for R&D tax credits in Ireland:
- Construction or refurbishment of buildings and structures
- Over a 4-year period, at least 35% of the building’s activities have to be used for R&D.
- If the building is also used for non-R&D activities, the non-R&D element should be excluded from the R&D claim.
- If R&D stops or the building is sold within 10 years, the tax credit will be clawed back.
- Plant and machinery
- Plant and machinery may qualify for the R&D tax credit where the expenditure also qualifies for capital allowances.
- If the plant and machinery is used for non-R&D purposes, the cost should be apportioned on a just and reasonable basis over each relevant period of its useful economic life
Outsourcing Costs
- Outsourcing to 3rd parties, institutes of higher education or agency staff in Ireland or relevant member states can qualify.
- The incentive does limit the outsourcing relief to 15% or €100,000, whatever comes first, and the total amount must not surpass a company’s contribution.
How is R&D Tax Credits In Ireland Paid?
There are several ways an Irish tax paying company can receive the 25% R&D benefit:
- An offset against the corporate tax liability.
- If there is not enough liability in the current year:
- The offset can be carried back to offset the previous year’s liability.
- There is also a possibility of receiving a cash repayment in instalments over a 33-month period.
- The credits may also be transferred to key employees subject to qualifying conditions.