Israeli Biotech Sets Up Irish R&D Subsidiary — Knowledge Box, R&D Tax Credit, 12.5% Trading Rate
Background: Israeli biotechs face a strategic choice on EU R&D
The biotech had won FDA orphan-drug designation and was preparing EMA submissions in parallel. The board’s strategic decision: should the EU R&D arm sit in Switzerland, the Netherlands or Ireland? Switzerland offered tax certainty but cost. The Netherlands offered an established biotech cluster but had been trimming its innovation incentives. Ireland offered the 12.5% trading rate, the 25% R&D tax credit on qualifying R&D expenditure, and the Knowledge Development Box (effective 6.25% rate on qualifying IP profits) — together one of the most generous research-tax regimes in the OECD.
The challenge: structuring at incorporation to qualify for incentives
Biotech incentives in Ireland are not automatic. The R&D tax credit requires that the qualifying activity is performed by the Irish company, that the related IP is held appropriately, and that documentation supports the claim. The Knowledge Development Box (KDB) requires qualifying assets to be developed by the Irish entity (modified nexus), with detailed expenditure tracking. Getting the constitution, intercompany agreements and ownership of IP wrong at incorporation can disqualify both reliefs years later.
The solution: a constitution and intercompany framework that qualify from day one
Chern & Co worked with the biotech’s Tel Aviv tax counsel and Irish tax advisor to:
- Draft a bespoke LTD constitution with objects covering R&D, IP development and licensing
- Appoint an EEA-resident nominee director alongside two Israeli directors of the parent under Section 137
- File the A1 with the CRO; certificate issued day 14
- File the RBO declaration within the statutory window — day 16
- Register with Revenue for corporation tax, employer PREM and VAT — week three
- Implement intercompany services and IP cost-sharing agreements aligning with the modified-nexus KDB rules
- Open a multi-currency business bank account for grant draws and intercompany transfers
The outcome: a fully eligible Irish R&D subsidiary
Within month two, the Irish R&D subsidiary was hiring its first three research staff under Irish PAYE, with grant funding from Enterprise Ireland under review. The company’s tax counsel confirmed eligibility for the 25% R&D tax credit on qualifying expenditure and a roadmap to KDB eligibility once the first qualifying asset was developed. The Tel Aviv parent retains commercial control through transfer-pricing-compliant intercompany agreements.
“Chern & Co mapped the structure to qualify for the 25% R&D tax credit and the Knowledge Development Box from day one. Our tax counsel reviewed the constitution and signed off without changes.”
— VP Finance, Tel Aviv biotech
Why incorporation and tax structuring belong together
R&D-intensive companies that postpone tax structuring until “after we get our first grant” typically discover at year-end audit that they have to refile prior years, restate intercompany agreements, or forfeit reliefs. Chern & Co’s approach is to involve qualified Irish accountants in the constitutional drafting at day one, so the company is structurally eligible the moment it incorporates.
Building an EU R&D arm? Book a free 15-minute consultation — we will model R&D credit and KDB eligibility before you commit a euro.
