Over two-thirds (69 percent) of MNCs conducting Research & Innovation believe Irish R&D grants and tax supports compare equally or favourably to other countries. However, with other jurisdictions such as the UK overhauling their systems, Ireland must reform R&D incentives to remain competitive, according to the Ireland’s Innovation Index report published by KPMG and the Industry Research and Development Group (IRDG).
Over the last three years, 67 percent of businesses conducting Research, Development & Innovation (RD&I) activities in Ireland have increased their overall RD&I spend, according to a just-published survey of almost 400 RD&I leaders in Ireland IRDG and KPMG.
According to the inaugural ‘Ireland’s Innovation Index’, 80 percent of businesses expect to increase their RD&I investment over the next three years. Only four percent of businesses stated they do not expect their expenditure to increase over this period.
The importance of RD&I to Ireland’s economy
RD&I remains a significant employer in Ireland, with 58 percent of companies employing between one and 10 people directly involved in RD&I in Ireland, 25 percent employing 11-50 and 17 percent have 51 or more employees directly involved in RD&I.
Ireland is noted for having strong RD&I supports, one of the most significant of which is the R&D Tax Credit (RDTC), first introduced in 2004. Sixty-four percent of respondents stated they have availed of the RDTC, while 53 percent have availed of LEO/EI/Údáras or IDA grant supports, 24 percent have availed of other supports and 17 percent have not availed of any of the above supports.
Ken Hardy, Head of KPMG’s R&D Incentives Practice noted: “It’s very positive to see that over two-thirds of Irish RD&I professionals feel Ireland’s support systems compare well to other countries. Continuing to attract RD&I activity in Ireland, while retaining our current R&D projects, is critical to Ireland’s future economic performance. However, administrative delays and complexity were cited by many as a barrier to completing RD&I activity. Many other European jurisdictions, including our nearest neighbour, the UK, are aggressively competing to attract R&D. It’s essential that government incentives like direct grants, as well as tax-based incentives like the R&D Tax Credit are continuously monitored and improved to remain competitive in our increasingly complex global tax landscape.”
Dermot Casey, Chief Executive Officer at IRDG said: “We are underspending on innovation and need to significantly increase our investment to meet the challenges of Sustainability and Digitalisation and to ensure continued economic prosperity. It is clear we need additional support to help innovative SMEs create the next generation of Irish Kingspans and Fexcos, and to underpin our FDI sector. Access to skills, talent and admin burdens are all challenges innovative companies are grappling with and investment can address these. Businesses are planning to invest and they need to be supported in doing so. The €2bn gap in spending relative to Innovation Leaders in the EU underlines this point.”
Barriers to RD&I activity
Complex admin processes and delays under current system
Administrative time related to grant drawdowns was cited by almost half (46 percent) as the most significant barrier stopping their companies from applying for RD&I supports, with the grant application process itself cited by 39 percent as a barrier.
Other issues cited as the biggest factors impacting companies’ ability to innovate include lack of budget (48 percent) and difficulty recruiting key talent (46 percent). Attracting skilled staff (29 percent) and funding (28 percent) were stated as companies’ biggest needs around conducting RD&I.
In relation to improving supports for SMEs conducting RD&I, over a third (35 percent) of SMEs feel that increasing grants and funding will significantly enhance supports for SMEs, while over one in five (21 percent) indicated that making the application/claims process easier would support them better. 13 percent also feel that increasing education and training will improve supports.
Seventy-eight percent stated that an R&D Tax Credit of 50 percent would incentivise increased research and development of green and sustainable technologies.
State RD&I funding creates innovation and employment
State RD&I funding creates innovation and employment. However, remaining competitive in an evolving international tax landscape is essential.
Over half (52 percent) of survey respondents noted that state funding of RD&I supported more employment within their organisations, while almost two-thirds (64 percent) cited state funding supports as allowing them to conduct more R&D. Over half (58 percent) of multinational corporations (MNCs) responded that less than half of their R&D would take place in Ireland without the RDTC.
Almost 7 in 10 (69 percent) respondents feel Ireland’s R&D grant and tax credit supports compare equally or favourably to other countries, while 31 percent feel that the Irish system compares negatively.
Survey respondents cited the main factors Ireland needs to consider remaining competitive in the evolving international tax landscape as simplifying the claims process/reducing admin work (29 percent), increasing funding amounts/expanding eligibility criteria (15 percent), and improving access for SMEs (9 percent).
About the report
The Industry Research and Development Group (IRDG) and KPMG conducted a survey of 394 Innovation leaders operating across Ireland. The report looks at how Ireland’s incentives and supports are perceived compared to other jurisdictions and looks at improvements that can be made to remain competitive.
Almost two-thirds (64 percent) of respondents are Irish owned with slightly over a third (36 percent) foreign-owned. These businesses are spread across engineering/technology (18 percent), business software (ICT/Cloud/Saas) (17 percent), medical health/wellbeing/devices (15 percent).
*GNI - GDP measures the total output of the economy, the total income remaining with Irish residents is the GNP, GNI adjusts domestic incomes for subsidies from and taxes paid to the EU. (DFHERIS, 2021)
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