Ireland's Innovation Index 2025

Consistent with a trend noted over the past two years of the IRDG / KPMG analysis, limited budget continues to be reported as the biggest factor impacting companies’ ability to innovate - with 64 percent of respondents now stating it to be one of the biggest factors affecting their innovation potential.

Amid increasing economic and competitive pressures, the R&D Tax Credit remains the most widely used support, with 64 percent of businesses surveyed claiming it. However, constraints such as administrative complexity and time requirements were cited by 39 percent as barriers to broader participation. Notably, over half (56 percent) of multinational companies surveyed reported that only 10 percent or less of their R&D would remain in Ireland without the availability of this credit.

This underscores the critical nature of financial supports in sustaining R&D activity in Ireland and the direct link that exists between policy incentives and job creation. While 65 percent increased RDI investment over the past three years, this is down from 74 percent in 2024.

Over 7 in 10 (72 percent) have a dedicated structure to drive RDI indicating the importance of RDI to the business.  This rises to 90 percent for those claiming the R&D Tax Credit.

The R&D Tax Credit has clearly driven professionalisation of R&D Management over the past two decades, and an Innovation Tax Credit could similarly underpin a step change in Irish Innovation. This is in marked contrast to general Innovation Management where only 21 percent of companies have a structured management process in place with 24 percent working on such a process. 

Identifying new customer needs (73 percent) is the main factor inspiring companies to innovate. Identifying sustainable new market opportunities and optimising process efficiency are also significant drivers.

Product innovation continues to be a core RDI focus, with three-quarters (76 percent) targeting it now and majority (81 percent) prioritising it over the next three years. Technological and digital innovation (64 percent); Process Innovation (58 percent); Service Innovation (36 percent) and Customer Experience Innovation (35 percent) also rank highly among several other categories.

Cost reduction and operational efficiencies surged in importance for companies surveyed, rising from 31 percent in 2024 to over half (52 percent) in 2025. This focus on cost reduction and operational efficiencies is expected to continue considering the current international landscape and global trading challenges, with tariffs impacting profitability for many companies. Meanwhile, 46 percent plan to prioritise AI and disruptive technologies, showing a shift towards tech-enabled transformation.

These trends highlight how Irish-based companies are positioning themselves not only to refine their existing offerings but also to embrace technological disruption, which is critical for staying competitive in the fast-evolving global market.

The Innovation Index research confirms that administrative complexity and uncertainty around the definition of what qualifies for a claims submission are the primary deterrents for companies to avail of relevant incentives.

Smaller-scale projects particularly suffer as companies perceive the administrative cost outweighs potential benefits. An overhaul of the existing system is required, including simplification for SMEs, a central administrative unit in Revenue to improve processing and increased outsourcing thresholds.

The research also highlights a significant amount of innovation happening in Ireland that falls outside the existing boundaries of ‘scientific uncertainty’ in the R&D Tax Credit. These include customer experience design, innovation within the social sciences (such as behavioural sciences), circular economy breakthroughs, product design and entirely new digital-first business models.

This work doesn’t always fit neatly into the current R&D Tax Credit. But this is exactly where many Irish SMEs and scale-ups are investing in their futures and it is high-risk, high-skill and mission-critical for tomorrow’s economy.

Both IRDG and KPMG have proposed the creation of a specific new Innovation Tax Credit (ITC) to support high risk innovation in same way the R&D Tax Credit has supported high risk R&D over the past 21 years.

As Ireland seeks to accelerate its climate performance, there is growing momentum to boost green R&D. Yet currently only 35 percent are actively investing in sustainability related innovation (developing products or services that drive sustainability versus investing in off-the-shelf products like solar etc). Only an additional 6 percent have indicated they plan investment in this area over the next three years.

A striking 76 percent of respondents said that a 50 percent enhanced tax credit for green innovation would stimulate investment by them in sustainable technologies. With only 35 percent currently investing in these technologies, this highlights a ripe opportunity for Ireland to lead in climate innovation by aligning fiscal policy with sustainability targets under the Paris Agreement and the EU Green Deal.