Ireland offers significant incentives to companies looking at locating their research and development (“R&D”) activities here.
There are two major incentives granted to companies that incur expenditure on R&D within Ireland and within the EEA generally (subject to certain conditions and limitations). A company that incurs expenditure on R&D may avail of a tax credit of 25% on all R&D expenditure incurred on or after 1 January 2015. The R&D credit reduces a company’s corporation tax liability for the current year. The tax credit is in addition to the corporation tax deduction available at 12.5% for qualifying expenditure. The combined effect of these provisions is that it is possible to obtain tax relief at an effective rate of up to 37.5% of expenditure on R&D.
The tax credit is available for offset against the current year corporation tax liability of the company or to be paid as ‘tax free’ remuneration to certain ‘key employees’ and any unused credit can be carried forward indefinitely to future periods. Excess credits can also be carried back against corporation tax paid in the previous period. Alternatively, a company may, provided certain conditions are satisfied, claim to have any remaining excess credit paid to it by the Revenue.
The maximum repayment which can be claimed is limited to the greater of: a) the corporation tax paid by the company for the preceding 10 accounting periods; or b) the payroll liabilities (i.e. PAYE, PRSI and levies) accounted for by the company in the accounting period in which the qualifying R&D expenditure was incurred.
The tax credit is available on a group basis in respect of group expenditure on R&D. Relief is also available for a company that has not carried on all of the R&D itself:
A company which incurs expenditure on R&D can claim credit for certain amounts paid to a university to carry out R&D activities on its behalf. Relief in this case will be restricted to so much of the payment to the university as does not exceed the greater of €100,000 or 5% of the expenditure incurred by the company itself on R&D activities; and
A company which incurs expenditure on R&D can claim credit for certain amounts paid to another unconnected person (a person other than a university) to carry out R&D activities on its behalf. Relief in this case will be restricted to so much of the payment to the other person as does not exceed the greater of €100,000 or 15% of the expenditure incurred by the company itself on R&D activities.
Irish tax legislation also allows for a tax credit for capital expenditure on buildings or structures used for the purpose of carrying on R&D activity. Expenditure in this context extends to spending on the construction or refurbishment of a building or structure to be used to facilitate R&D. The tax credit amounts to 25% of the cost of the construction or refurbishment and is available on a proportional basis if at least 35% of the building is used for R&D facilities. The full R&D credit of 25% may be claimed in the year in which the expenditure was incurred. A 10 year claw back exists where the building or structure is sold or ceases to be used by the company for the purposes of R&D or for the purposes of the same trade. There are a number of other features of Irish tax legislation which may be of benefit to companies seeking to establish a base in Ireland to exploit intellectual property.