Contributor: Mark O'Sullivan – Partner and Head of Research & Development Incentives, BDO
Ireland's R&D Tax Credit is a well-established incentive that has driven innovation and attracted significant R&D investment over the years; however, there are a number of enhancements and additional options that could make it more appealing and supportive of innovation. To enhance the R&D Tax Credit, increasing the current credit percentage from 30% could offer more substantial financial relief, thereby encouraging greater investment in R&D activities.
Simplifying the application process and providing clearer guidelines would reduce administrative burdens and make the credit more accessible, particularly for SMEs. Introducing a pre-approval mechanism, similar to grant application processes, could provide companies with assurance about qualifying activities before commencing projects, thereby incentivising investment.
Beyond the R&D Tax Credit, other taxation options can further support innovation. A review and update of the Knowledge Development Box (“KDB”) regime, offering reduced tax rates on income from intellectual property, could incentivise the development and commercialisation of innovations within Ireland, attracting multinational corporations and encouraging domestic firms to expand their IP portfolios. As currently designed, the KDB regime has not had the desired effect in this regard.
Expanding eligibility criteria to include a broader range of activities in areas such as digitalisation and sustainability would foster participation across diverse sectors, stimulating innovation. It is hoped that a separate tax incentive focussed on ‘Innovation’ will be forthcoming based on the consultation feedback received.
Furthermore, collaboration tax benefits could encourage partnerships between private companies and academic institutions, fostering collaborative R&D. This approach could lead to technological and knowledge breakthroughs, enhancing Ireland’s reputation as an innovation hub and driving economic growth. This could be done by way of increasing, or removing, the cap on subcontracted or academic costs allowable under the R&D tax credit regime, or through the introduction of a new tax incentive in this space.
By implementing these strategies, Ireland could significantly enhance its attractiveness as an R&D and Innovation hub, creating a more conducive environment for innovation, ensuring sustained economic growth and global competitiveness.