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What is R&D Tax Credit in Ireland

What makes Ireland a top destination for company formation? Low corporation tax rate, ease of reporting, and numerous government programs to support startups and encourage enterprises to set up,  grow and innovate in the country. R&D tax credit is one such initiative. 

The R&D tax credit in Ireland helps firms reduce their tax bill when they create new products, improve existing ones, or explore cheaper options of the current methods of production and research. This initiative encourages regional innovation and financially rewards cutting-edge technology development and utilisation. In this post, we explore the history and purpose of R&D tax credit, qualifying requirements, the application process and how to apply for R&D if you outsource the development process. 

Overview of R&D Tax Credit in Ireland

R&D tax credit was introduced in 2004 to stimulate innovation. Research and development (R&D) activities must be:

  1. Systematic, exploratory or experimental.
  2. Carried out in an area allowed by the tax authorities.
  3. All types of research should be included, including fundamental, applied, and experimental.
  4. Aim towards the advancement of science or technology.
  5. Eradicate uncertainty in the fields of science and technology.

Companies of any size and in any sector that are registered in Ireland and engage in qualifying research and development may apply for the R&D credit. You may claim a credit equivalent to 30% of your recognised research and development expenses.

Government funding for innovation is clearly working, and market trends illustrate that vividly. According to the Irish Tax Institute, the number of companies claiming the R&D tax credit doubled in two years, going from around 600 to 1,200. The tendency followed was to increase from 20% to 25% tax credit, which demonstrates the positive impact of the increase. For the year 2024, the R&D rate increased to 30%.

How to Qualify for Research and Development Tax Incentive

The research and development tax credit is for businesses in specific STEM sectors approved by the IRS. These sectors include energy, biotechnology, pharmaceuticals, IT, engineering, and others. Businesses can qualify for this credit if they develop new technologies, improve existing technologies, or create new materials to solve scientific or technical problems.

There are a number of requirements to fulfil before your company can be considered eligible for research and development tax incentives:

  • It must be structured and done using scientific or technical procedures, such as experiments and systematic analysis.
  • Projects should resolve technical uncertainties or provide new technical solutions to better technology or science.
  • Original scientific or technical methods to fundamental or applied research or product development.

These standards guarantee that tax incentives may only be used for activities that really innovate and advance science and technology, which in turn helps to advance the economy of the country as a whole. 

Outsourcing R&D

To make sure that research and development tax advantages are claimed appropriately, there are regulations that companies must follow while outsourcing their R&D duties to third parties or educational institutions. These may include independent contractors, specialised research organisations, labs, universities, and other scientific institutions that would carry out the essential research or development for the tax credit-claiming firm. 

To guarantee a fair use of the tax advantages, these regulations are outlined as spending caps and notification duties.

  • The amount of money a corporation spends on research and development determines how much of an impact outsourcing has on R&D expenses. The maximum amount that may be paid to a third party cannot exceed EUR 100,000 or 15% of the total amount that the firm spends on research and development.
  • The total amount claimed must not exceed the qualifying expenditure incurred by the company itself in the period.
  • The company must inform the outsourcing provider in writing that it cannot also claim the research and development tax credit for the same job. Such notice should be delivered in advance or in the same day of making a payment. When the outsourcer is an individual or business without a local presence — the tax authorities will consider the disclosure as voluntary.

How to Apply for R&D Tax Credit in Ireland

Here’s your step-by-step guide on how to apply for R&D in Ireland via ROS (Revenue Online Service).

  1. Verify that the projects you are submitting for R&D meet the requirements.
  2. Accurately document all expenditures incurred in the course of research and development.
  3. Outline the goals and novel features of your research and development project in a written report.
  4. Fill out the R&D credit application using the proper forms.
  5. The next step is to submit the application to the tax office, accompanied by any supporting papers. 

The application procedure is straightforward but must be completed within 12 months of the expenditure, underlining the significance of timing. This is why additional help with research and development document preparation and submission may be required. At Chern & Co, we specialise in providing expert guidance on R&D tax documentation and we are ready to help

Wrapping Up

Ireland’s R&D tax credit scheme helps enterprises develop and expand. A tax-paying corporation doing qualified R&D in the scientific and technology sectors is eligible. Irish companies may boost their competitiveness and financial health by adopting R&D and using these tax benefits. Take the first step towards achieving your goals by partnering with Chern & Co, and let our team of experts guide you through claiming the R&D tax benefits.

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