Companies spending money on research and development in Ireland may be entitled to claim a tax credit on their R&D expenditure. An outline of the tax credit and the qualifying criteria are provided in this blog.
The tax credit is calculated at 25% of qualifying expenditure and is used to reduce a company's corporation tax. A company may apply to have the credit paid in instalments in situations where it has offset current and previous years' corporation tax liability.
Basic qualifying criteria include that:
- the applicant is a company;
- the company is within the charge of Irish corporation tax;
- the company carries out its R&D in Ireland or in another European Economic Area member state; and
- the expenditure does not qualify for a tax deduction in another country (in the case of a company tax resident in Ireland).
qualifying r & d activity
To qualify for the R&D tax credit, a company’s R&D activities must meet a number of conditions, namely that the R&D:
- involves systemic, investigative or experimental activities;
- is in the field of science or technology;
- involves one or more of the following categories of R&D - basic research, applied research or experimental development;
- attempts to make a technological or scientific advancement; and
- involves the resolution of scientific or technological uncertainty.
However, companies claiming the R&D tax credit are not required to hold the intellectual property rights resulting from the R&D work. There is also no requirement for the R&D work to be successful.
Claiming The Credit
Companies satisfying the above requirements may make an R&D tax credit claim by completing the relevant sections of the corporation tax return. The Revenue Commissioners does not require supporting documentation with the corporate tax return, although such documentation must be maintained by the taxpayer. The documentation would only be requested during a Revenue audit or enquiry.
Calculating The Credit
For expenditure incurred in accounting periods commencing on or after 1 January 2009, the relief is calculated as 25% of qualifying expenditure. The credit is initially used to reduce the liability to corporation tax for the current accounting period.
Where a company has insufficient corporation tax liability against which to claim the R&D tax credit in a given accounting period, the tax credit may be credited against tax for the preceding period and may be carried forward indefinitely. If the company is a member of a group, the credit may be allocated to other group members.
The R&D credit can also be claimed by the company as a payable credit. This is where a company has offset the credit against the corporation tax of the current and preceding accounting periods and an excess amount still remains. In such situations, the company may make a claim to have the amount of that excess paid to it by the Revenue Commissioners in three instalments over a period of 33 months.
A company must claim the R&D tax credit within 12 months from the end of the accounting period in which it incurs the expenditure. However, expenditure on buildings and structures is not subject to this 12-month time limit.