R&D incentives

The limits applying to payments made by claimant companies in respect of R&D activity outsourced to unconnected third parties and third-level institutions will increase from the greater of 15% of a company’s non-outsourced R&D expenditure or €100,000 to the greater of 20% of non-outsourced R&D expenditure or €200,000.

This change should provide greater flexibility to access external expertise and encourage collaboration between businesses and third-level institutions. The limits are linked to a claimant company’s ‘in-house’ R&D costs, which reinforces the key policy objective of creating and maintaining highly skilled R&D employment by the claimant company.

The first-year payment threshold will increase from €87,500 to €105,000. Companies with an R&D tax credit claim of €105,000 or less will receive the full benefit of their claim in the first year. Claimants with credits between €105,000 and €210,000 will also benefit by receiving their refunds more quickly than those with larger claims. The measure is designed to improve access to funding, particularly for small and medium-sized enterprises (SMEs).

Budget 2027 provides for improved recognition of the R&D tax credit when calculating preliminary corporation tax. This is expected to provide a cash flow benefit where a company offsets its R&D tax credit against tax liabilities.

A new provision has also been announced which will allow a claimant company to increase its qualifying R&D cost base by 5% of its qualifying R&D wage costs, subject to having incurred a sufficient level of expenditure.

The measure recognises that R&D-active companies incur additional supporting costs to carry out R&D projects that may not otherwise fall within the definition of qualifying R&D expenditure.

While this is a positive enhancement, we look forward to further clarification with respect to the requirements for companies to have incurred “a sufficient level of expenditure” and how this will apply.

Budget 2027 proposes an amendment in respect of clinical trials. Where a clinical trial is regulated, this may be used by claimant companies to satisfy the science test for R&D tax credit purposes. The proposed amendment is intended to recognise R&D work carried out by Irish companies as part of global trials.

It should be particularly relevant to the pharmaceutical, biotechnology and medical device sectors, where trials involve rigorous scientific methods, extensive testing, and the resolution of technological uncertainty. The measure is expected to reduce compliance costs, improve certainty and support Ireland’s position as a location for R&D and clinical research.

This measure will be provided for at Committee Stage of the Finance Bill as technical work on the relevant legislation is ongoing.

In addition to the R&D tax credit enhancements, Budget 2027 extends Ireland’s Knowledge Development Box (KDB) regime to 1 January 2032.  The KDB regime has had only a limited number of claimants availing themselves of the relief since its introduction in 2016.

Budget 2027 also introduces a time-limited option for existing claimants to elect out of the KDB regime, subject to certain conditions. This is a welcome announcement and should provide flexibility for companies that have claimed KDB in the past but may not wish to continue submitting claims.

The evolution of the international tax landscape (e.g. Pillar Two) has meant that companies that may previously have claimed the KDB may no longer receive any benefit from their KDB claims.