Following the enhancements announced by Minister Donohoe during his Budget speech, Finance Bill 2025 includes proposed updates to the R&D tax credit (RDTC) and other incentives including the digital games tax credit and the film tax credit.
Research and development tax credit
Rate increase
The rate at which companies can avail of the RDTC will be increased from 30% to 35%. This is the second increase in a two-year period following the increase to the rate of relief from 25% to 30% in Finance (No.2) Act 2023. This a welcome enhancement and sends and a positive message to both multi-national corporations and Irish indigenous companies that Ireland is a great location to undertake R&D activity.
Increase to first instalment threshold
The threshold for the first RDTC instalment of the credit will be increased from €75,000 to €87,500. This is a further extension of the threshold which increased from €50,000 to €75,000 in Finance Act 2024.
Allocation of employee emoluments
The Bill also provides that where an employee performs not less that 95% of their duties of employment in the carrying on of R&D, 100% of the employee’s emoluments shall be considered eligible R&D expenditure. Similar to other restrictions in the RDTC legislation, the expenditure will not be eligible where it qualifies for relief, credit or an allowance for the purposes of tax in a territory other than Ireland.
The proposed amendments in relation to the rate increase, increase in the threshold for the first instalment of the credit and provisions in relation to employee emoluments will apply in respect of any accounting period for which the corporation tax return filing date is on or after the 23 September 2027. These amendments will therefore typically apply to companies with an accounting year-end of 31 December 2026 and periods later.
Construction of laboratories used for R&D
Additionally, the Bill provides for an update to the definition of ‘relevant expenditure’ in relation to expenditure incurred on a qualifying building for the purposes of the R&D Buildings Credit. The Bill provides that expenditure incurred by a company on the construction of a qualifying building shall include expenditure incurred by a company on the construction of a laboratory for use in the carrying on of R&D activities. Expenditure incurred on “any part of the laboratory for use as an office or for any purpose ancillary to the purpose of an office” will not be considered relevant expenditure for RDTC purposes.
This amendment is proposed to take effect from the passing of Finance Act 2025.
Other updates
The Bill also clarifies that companies must specify whether each of the RDTC instalments are to be treated as an overpayment of tax (to be set against another tax liability of the company), or paid to the company by Revenue as well as the timing of the third instalment.
Digital games tax credit
The digital games tax credit (DGTC) provides a valuable credit to companies involved in the development of certain digital games. A credit is available of up to 32% of eligible expenditure up to a limit of €25 million of expenditure.
Finance Bill 2025 provides for an extension of the DGTC for a period of six years to 31 December 2031. This extension will provide certainty regarding the availability of the credit and encourage the continued growth of the digital games sector in Ireland.
In addition, the Bill provides for an enhancement to the DGTC to allow for claims in respect of certain expenditure incurred on development of post-release digital content. This includes digital content which is developed subsequent to the game’s release date and which is in addition to, and for incorporation into, that game.
Where a company develops and releases a digital game to the public and an interim certificate has been issued in relation to that game, a post-release extension can be applied for by the company. This will allow a claim to be made by the company in respect of expenditure incurred on digital content that is developed after the release of the digital game, where such expenditure is incurred within the period of extension.
The amendments above to the DGTC are subject to European Commission State aid approval and are therefore subject to a commencement order.
The Bill also provides that the definition of qualifying expenditure is to be updated to reflect that expenditure must be allowable as a deduction in computing income of the trade of developing digital games which is chargeable to tax under Case I of Schedule D.
Film tax credit – visual effects work
Relief in the form of a corporation tax credit of 32% is currently available in respect of qualifying film production costs of up to a maximum of €125 million where the relevant conditions are met. The Bill proposes to introduce an enhanced film corporation tax credit of 40% for qualifying film productions with eligible expenditure of at least €1 million on qualifying visual effects projects.
The enhanced credit will apply to qualifying expenditure on visual effects projects and will be capped at €10 million per production. Qualifying expenditure in excess of €10 million will qualify for the 32% standard credit rate where conditions are met.
This measure is intended to increase the competitiveness of the Irish market in attracting visual effects projects from overseas. Implementation will be subject to the passing of a Ministerial commencement order.
Get in touch
The measures unveiled in Finance Bill 2025 will have far-reaching implications for businesses across Ireland. If you have any enquiries, comments, or wish to explore further, we are here to assist.
Contact Damien Flanagan of our Tax team today.
