R&D tax credit in Ireland: What it is and how to apply

During a time of global economic uncertainty and what has been described as an existential threat to the Irish economy, research and innovation is even more important to remain competitive.

And one way Ireland looks to encourage innovation is through the R&D tax credit.

This tax credit, which was first introduced in 2004, is available to companies that pay Irish corporation tax and undertake research and development (R&D) activities in the European Economic Area (EEA) or the UK.

This article outlines what is involved and covers:

What is the R&D tax credit and how does it work?

Below are key facts in relation to the tax credit:

• A crucial point in relation to the tax credit is that there is no requirement for the R&D activities to be successful. The activity must seek to achieve, as opposed to succeed in achieving.
• The tax credit is worth up to 30% of qualifying expenditure. This credit is in addition to the normal 12.5% revenue deduction available for R&D expenditure, thereby resulting in a benefit of 42.5%.
• Eligible expenditure can include expenses (such as salaries, materials consumed, overheads, etc) that are deductible for the purposes of computing corporation tax.
• Expenditure incurred on plant and machinery (P&M) can be classed as qualifying R&D spend. In order to qualify, P&M must be eligible for wear and tear capital allowances and must be used for the purposes of undertaking R&D activities.
• Expenditure on construction or refurbishment of a building used for qualifying R&D activity may also be classed as qualifying R&D spend. The credit is available for expenditure provided a number of conditions are met.
• The tax credit is a fully payable credit that is paid in three fixed instalments. Since January 2025, the first instalment is the greater of €75,000 (or the amount of the R&D corporation tax credit claimed, if lower) or 50% of the amount of the R&D tax credit. The second instalment is three-fifths of the balance and the third instalment is the remaining balance.
• Revenue has four years from the end of the year in which the claim is made to carry out an audit.

Recent changes to the tax credit

For R&D completed after 1 January 2024, the credit increased from 25% to 30%.

Also, in Budget 2025, for accounting periods starting after 1 January 2025, Revenue increased the amount of credit that can be claimed in the first instalment, from €50,000 to €75,000.

This change is designed to provide quicker access to funding for companies engaging in smaller R&D projects.

In addition, since 1 January 2024, if you’re claiming the credit for the first time, you must notify Revenue at least 90 days before making the claim.

This requirement also applies to companies that have not claimed the credit in the previous three years.

Qualifying R&D activities

To qualify, your company’s R&D activities must:

• Involve systematic, investigative or experimental activities
• Be in the field of science or technology (this has to be Revenue-approved)
• Involve one or more of these categories of R&D:
  • Basic research
  • Applied research
  • Experimental development

• Seek to make scientific or technological advancement
• Involve the resolution of scientific or technological uncertainty.

Industries carrying out R&D can include:

• Pharmaceuticals
• Medical devices
• Software development
• Fintech
• Heavy and light engineering
• Food and drink production.

“Qualifying R&D activities are vaguely described, in order to be widely accessible to many different industries,” explains Barrie Dowsett, who is CEO of Myriad, which specialises in offering advice on the R&D tax credit, along with R&D grants, and has an office in Dublin, as well as London and Paris.

Barrie points out that eligible R&D projects are not limited to lab research, and cutting-edge innovations and technological advancements can simply be appreciable improvements to products, processes or increased capability and knowledge in software.

And he believes many businesses don’t realise they’re undertaking eligible qualifying activities and could be missing out.

He says, “If your technical lead [the R&D manager, lead engineer, or lead developer, for example] is struggling to overcome the feasibility challenges of your project, then your project will almost certainly qualify for the R&D tax credit.”

How to claim

Claims are processed by Revenue as part of your corporation tax return and you must use Revenue Online Service (ROS) to claim your credit.

Claims must be made within 12 months from the end of the accounting period in which the expenditure is incurred.

Top tips on applying for the R&D tax credit

Applying can be complex, especially for an SME, which doesn’t have the same resources as a large multinational.

Barrie says, “The process is complicated; many claimants are caught out by waiting too long to start their claim and not having enough time to make a well-considered, robust claim.

“An R&D tax credit claim is unlikely to be completed in a day.”

You must also ensure that you have all the correct documentation in terms of both the science aspect and the finance aspect.

Barrie adds, “Ensuring that your projects are qualifying and your costs are eligible requires significant know-how, especially since these two aspects of the claim are usually carried out by separate teams [i.e. technical team and finance team].

“Cohesion between these teams is crucial to make sure you don’t leave any eligible costs on the table.”

What type of documentation should you keep?

Barrie outlines the types of documentation you should keep:

1. Project logs

Regularly updated logs that track progress and critical milestones, outlining the challenges encountered and the steps taken to resolve them.

2. Staff participation records

Evidence of the time each employee spent on R&D activities. This is usually done via timesheets.

3. Internal communications

Emails between the team, and correspondence with any subcontractors or agency staff, can help demonstrate what work was done and when.

4. Contracts and invoices

This is crucial to demonstrate that costs were incurred and paid.

How does Ireland compare with other countries?

The tax credit rate of 30% compares well with many other economies. The net benefit in the UK, for instance, is only 15%.

However, though Ireland’s 30% rate is generous, its total spend on research and development as a percentage of gross domestic product (GDP) is well below the European Union (EU) average, at 0.96% in 2022, compared with the EU average of 2.2%.

But the figure is more positive if you use gross national income (GNI), which excludes distortions from foreign-owned firms. With this calculation, Ireland’s R&D expenditure as a percentage of GNI in 2022 was significantly higher at 1.78%.

Revenue’s statistics on the uptake for the 10-year period up to 2022 shows that about 1,600 companies are making claims each year.

Barrie says, “The vast majority of claims are made by small and medium-sized companies. in 2022, 1,444 companies were SMEs and the remaining 187 were large companies.

“However, in terms of expenditure, €888 million in expenditure was claimed by smaller companies compared to a staggering €3.8 billion claimed by large corporations, despite the much smaller number of large companies claiming.”

He thinks this shows that work needs to be done to make it easier for SMEs to avail of the tax credit.

“The largest slice of the pie is claimed by huge multinationals,” adds Barrie. “SMEs are often discouraged from claiming the tax credit due to the complexity of the scheme or concerns about a Revenue audit.”

Also, he feels that while the increase in the initial amount of cash paid out from €50,000 to €75,000 is positive, the pre-claim notification for first-time claimants and those who have not claimed in the last three years is adding more hurdles to an already complex scheme.

Final thoughts

To keep its competitive edge, Ireland needs to up its investment in R&D.

Though it may be tempting to defer investment during a time of global upheaval, now is not the time to stand still.

While the R&D tax credit is only part of the equation, they will help to increase Ireland’s long-term competitiveness and the government needs to continue to facilitate companies, and particularly SMEs, to avail of the tax credit.