What Tax Reliefs Are Available For Businesses In The Republic of Ireland?

With its healthy economy, relatively low unemployment and progressive taxation system, Ireland has for many years been a very popular place to live, work and do business. The Irish government has also launched a number of helpful financial incentives and support for companies over the years, some of which we will explore here.

Tax incentives

Most notable tax incentives in Ireland include:

• A 25% credit in respect of money spent on eligible R&D expenditures (effectively offering a tax deduction of 37.5%)
• A reduced Corporation Tax rate of 12.5% on active business income
• Accelerated tax depreciation allowances for certain energy efficient machinery, fixtures and fittings
• The chance to exploit IP at preferential rates of tax
• The opportunity to undergo investment management on non-Irish investment funds without the need to be physically located in Ireland for tax purposes
• An effective regulatory, tax and legal framework that allows the swift redomiciliation of investment funds from offshore centres back to the Irish Republic.

R&D Tax Credits

R&D Tax Credits were launched by the Revenue to encourage companies to grow and innovate. Essentially, a tax credit of 25% applies to the full amount of R&D expenditure a company incurs, in addition to the normal 12.5% revenue deduction available for the R&D expenditure. This therefore results in an effective Corporation Tax benefit of an impressive 37.5%.

A separate R&D Tax Credit can also be claimed for money spent on the refurbishment or construction of an eligible R&D building. In order to claim, 35% of the building must be used for eligible R&D purposes across a four-year period. This is particularly useful when R&D work has been carried out in a manufacturing environment. The credit a company can claim is equal to 25% of the money spent on the refurbishment or construction of an eligible building. The amount however is restricted dependent on the R&D use.

R&D Tax Credits are available for use in offsetting the current year’s Corporation Tax liability. Any excess can be held back for offsetting against the year prior which will generate a tax refund. Any further excess can then be monetised across a three-year cycle. In addition, a company may account for the R&D Tax Credit via their profit-and-loss account when calculating its pre-tax profit or loss. This immediately has an impact on the unit cost of the R&D work, which could affect where the next R&D project is located.

Companies receiving R&D Tax Credits also (in some circumstances) have the option to reward key employees through various alternative uses of the credit. Effectively, companies can surrender a percentage of their R&D tax relief (that would otherwise have been used against Corporation Tax) to ‘key employees’ thus reducing their effective rate of tax to 23%.

This is beneficial as the normal effective rate of tax for such employees would usually be over 40% without the R&D Tax Credit. In order to be classed as a ‘key employee’, the staff member must perform over 50% of their employment duties on eligible R&D work. R&D Tax Credits can also cover R&D work which has occurred even if the company is not yet trading. In this case, the claim must be made within one year from the end of the accounting period during which the company first begins trading.

The final important point to note is that money paid out in acquiring intangible assets that are eligible for capital allowances covered by the IP regime, as well as costs incurred in registering/applying for legal protection for intangible assets resulting from R&D activities, are not eligible for R&D Tax Credits.

Intellectual property (IP) regime

A tax deduction can be applied with regard to capital expenditure incurred by Irish companies which are trading on the acquisition of eligible IP assets. The definition of an IP asset is pretty broad and includes the licence to use, or the acquisition of, the following (this is not an exhaustive list):

• Brand names and trademarks
• Copyrights, domain names, publishing titles and service marks
• Registered designs and patents
• Authorisation to sell medicines, or a product of any design, process, invention or formula (and rights that come about following such research)
• Expenditure on computer software acquired for commercial exploitation
• Applications for legal protection (for the registration of trademarks, brands, copyright, patents etc. for example)

Knowledge Development Box

The Knowledge Development Box offers a reduced Corporation Tax rate of 6.25% in relation to certain profits that have arisen from qualifying assets that are the result of a company’s eligible R&D activities. You can find out more about the Knowledge Development Box on the Revenue website.

Exemptions for new start-up companies

Brand new start-up companies may be able to take a ‘Corporation Tax holiday’ in certain circumstances. The relief can last up to three years as long as the total amount owed does not go above €40,000 in each year. Some relief is also available for companies with a Corporation Tax liability of between €40,000 and €60,000.

The relief available is linked to the amount of employer’s PRSI a company has paid during an accounting period as it’s aimed at companies that are working to generate employment. The exemption also allows relief which is unused during the company’s first three years (as they weren’t trading) to be carried forward to be used in the future.

How can Myriad Associates help?

Myriad Associates is made up of highly trained and experienced experts in all areas of R&D tax relief in Ireland and across the UK. Whether you’re a start-up or SME or you’re already well established, our friendly, professional team will offer the guidance you need from start to finish. Call us today on +353 1 566 2001 or use our contact page.