Qualifying Research and Development
Irish company tax provides relief for qualifying research and development expenditure. There is a 25% research and development tax credit for qualifying research and development expenditure. This is in addition to allowance and deductions for expenditure in the accounts generally. Accordingly, the full effective rate of relief may be up to 37.5%.
A company with excess r &d tax credits can carry them back to reduce tax liability in the prior year. The remaining excess may be carried forward and reclaimed in three instalments over 33 months after the end of the accounting period in which the relevant expenditure was incurred.
The research and development credit may be used to incentivise staff engaged in research . Companies have the option to use part of the credit to reward employees involved in the research and development.
Extent of Credit
Ireland offers a generous research and development credit. Expenditure on research and development qualifies for a tax credit of 25% in addition to the standard deduction effectively at 12.5% being the corporation tax rate.
The credit applies with reference to an increase in research and development expenditure relative to 2003. If no expenditure on research and development was undertaken at that date the relief is based on the entire expenditure.
The research and development credit can create a tax refund which can be carried back to offset against profits of the immediately preceding year. Repayment of excess credits may be available over a further three-year cycle
The repayment is at the higher of the corporation tax payable in the preceding 10 years or the payroll tax (PAYE) liability for the period during which the relevant expenditure on research and development is incurred and the immediately preceding year.
Companies may account for the credit in the profit and loss account thereby reducing the headline corporation tax rate. There is a limit of 15% on the research and development expenditure which may be subcontracted out
Intellectual property relief
Allowances are available for companies which incur capital expenditure on qualifying intellectual property tax assets. It may be based on the write-off depreciation charge in the accounts. Alternatively, the deduction may be claimed over 15 years at a rate of 7% per and 2% in the last year.
Intellectual property assets are
- trademark and brand names
- registered designs
- domain names
- Service marks
- medical products authorisations
- customer lists in connection with the transfer of the business as a going concern
- goodwill directly attributable to qualifying assets
Tax may be deducted from income arising from the use of intellectual property assets or in the case of sale of goods and services in which the use of the intellectual property assets contributes to their value
The total deduction together with related interest expense in not exceed 80% of the related intellectual property profits before such deductions. 100% deduction was allowed respect of IP assets acquired prior to 11 October 2017
Excess deductions may be brought forward against intellectual property profits in later years. Where the intangible asset is disposed of, there is no balancing charge if the sale takes place more than five years after commencement of the accounting period in which the asset was acquired.
Knowledge Development Box Relief
The knowledge development box relief reduces corporation tax by 50% in relation to profits from qualifying assets after 1 January 2016. The qualifying profits for which the relief is available is the proportion that the company’s research and development expenditure represent as a part of the total expenditure on the qualifying assets. The profits on which relief apply are prorated accordingly. Qualifying expenditure and uplift expenditure are measured as a proportion of overall expenditure on the qualifying assets
Qualifying assets are intellectual property which are the result of research and development. Intellectual property is qualifying patents, computer programs supplementary protection certificates plant breeder rights.
Assets may be grouped the purpose of the relief where they are closely related such that it is not possible to apportion income and expenditure in relation to them.
Specified trading activities consist of
- managing maintaining developing protecting enhancing or exploiting intellectual property
- researching planning processing testing experimenting developing or other related activity leading to an invention or creation of intellectual property
- the sale of goods and supply of services driving the value from such activities
Qualifying expenditure is similar to that in relation to the research and development credit. Expenditure for research and development undertaken by another entity on behalf of the claimant company may be qualifying.
Uplift expenditure mentioned above are costs outsourced to related entities incurred in the acquisition of IP which is not qualifying expenditure as such. However, they are permitted as uplift expenditure to a total of 30% of qualifying expenditure.
The overall expenditure is a total of acquisition costs and group outsourcing costs for the qualifying assets together with qualifying expenditure incurred in relation to it.
The election for knowledge development box relief may be made in the tax return for the relevant accounting period in which the expenditure is incurred and which must be within 24 months of the end of the accounting period
A loss may arise from knowledge development box activities which is available against the profits of the company in the year. It may be carried forward subject to restrictions.