According to IDA Ireland (Ireland's inward investment promotion agency) Ireland has become one of the most popular jurisdictions for research, development and innovation.
Given the range of support on offer to high-tech manufacturers in Ireland when they undertake research and development, it comes as no surprise to learn that another large company, Nestlé, has opened a new research and development centre in Ireland.
A supportive governmentIn addition to a corporate tax regime and business environment that is ideally suited to start-ups and multinationals, Ireland offers a range of funding support and incentives to help firms to realise their innovative potential. These include the Exploring Innovation Grant, the Agile Innovation Fund, the Research and Development (R&D) Fund, and the Intellectual Property (IP) Strategy. All of these are offered through Enterprise Ireland.
The R&D tax credit
In addition, the Government has put in place a generous tax relief scheme for companies investing in research and development activities.
The research and development tax credit, administered by the Irish Revenue Commissioners, is open to all companies in Ireland that are undertaking qualifying research and development activities in Ireland or within the European Economic Area.
Qualifying R&D expenditure will generate a 25% tax credit for offset against corporate taxes, in addition to a tax deduction at 12.5%.
An Enterprise Ireland guide on the incentive explains that the effect of the R&D tax credit scheme is that companies undertaking qualifying R&D can claim a refund from the Revenue of €37.50 for every €100 worth of R&D expenditure, effectively reducing the real cost of R&D by up to 37.5%.
The tax credit is primarily available for offset against the current year's, or immediate prior year's, corporation tax liability and is in addition to the corporate tax deduction that is otherwise available for the expenditure. Claims for R&D tax credits must be made within twelve months from the end of the accounting period in which the R&D expenditure was undertaken.
R&D activities can also result in cash refunds. If a company does not have a tax liability in the current or immediate prior period, it can claim a repayment in cash of R&D tax credits in three equal instalments over a three-year cycle. Alternatively, the tax credit will be offset against future tax liabilities.
The refund is limited to the greater of the corporation tax payable by the company in the preceding ten years or the payroll liabilities for the period in which the relevant R&D expenditure is undertaken.