R&D Tax Credit

The Research & Development (R&D) Tax Credit is one of Ireland’s top incentives to encourage and support innovation. It allows companies to claim a generous tax credit on qualifying R&D expenditures, effectively reducing their tax bill or even yielding cash refunds.

In this post, we’ll briefly explain how the R&D credit works and highlight the new improvements announced in the latest Budget. These changes – including a higher credit rate and enhanced cash refund – make the regime even more rewarding for businesses investing in innovation.

Overview of Ireland’s R&D Tax Credit Scheme

Who qualifies

A company may qualify if:

• it is within the charge of Corporation Tax in Ireland

• it carries out qualifying R&D activities in Ireland, the European Economic Area (EEA) or the United Kingdom (UK)

and

• the expenditure does not qualify for a tax deduction in another country.

Qualifying R&D activities

To qualify for the R&D Tax Credit, a company’s R&D activities must:

• involve systematic, investigative or experimental activities

• be in the field of science or technology

• involve one or more of the following categories of R&D:

  • basic research

  • applied research

  • experimental development

  
  

• seek to make scientific or technological advancement

and

• involve the resolution of scientific or technological uncertainty.

Qualifying Expenditure

Relief is available on the following:

• Expenditure incurred by a company wholly and exclusively in the carrying on by it of “research and development” activities. Eligible costs include wages, certain subcontractor costs, qualifying plant/equipment and other specified items (net of grants).

Companies claiming the R&D credit are not required to hold the intellectual property rights resulting from the R&D work. Equally, there is no requirement for the R&D work to be successful.

R&D credit for expenditure on buildings & structures

Relief may also be available under Section 766D TCA 1997 for expenditure incurred on an R&D building or structure subject to certain conditions, including:

• The company must be entitled to claim industrial buildings capital allowances on the building.

• The cost of the site is excluded, as is any expenditure covered by grants.

• The relief will be clawed back if the building is sold or ceases to be used within 10 years by the company for research and development activities or for the same trade as when the building is first brought into use.

• The building must be used at least 35% of the time as an R&D building over a 4-year period.

What the credit is and how much it’s worth

The R&D tax credit system has evolved substantially since it was first introduced by the Finance Act 2004.

For accounting periods commencing on or after 1 January 2024, the rate is 30% (previously 25%).

The credit for qualifying expenditure is in addition to the normal corporation-tax deduction for the qualifying expenditure (12.5%), giving an effective potential benefit of up to c.42.5% of eligible spend.

The credit for expenditure on buildings & structures is 30% of the specified relevant expenditure, which is based on the cost of the building and the percentage of time it is used as an R&D building.

How the credit is paid

The R&D Corporation Tax Credit applies to accounting periods commencing on/after 1 January 2023 and is repaid in three annual instalments.

For accounting periods commencing on or after 1 January 2025, the three annual instalments are calculated as follows:

1. the first instalment is the greater of:

2. €75,000 (or the amount of the R&D corporation tax credit claimed, if lower), or

3. 50% of the amount of the R&D corporation tax credit claimed,

• the second instalment is based on three-fifths of any balance of the remaining R&D corporation tax credit, and

• the third instalment is any balance of the R&D corporation tax credit remaining, being the credit claimed less the first and second instalment amounts already claimed.

The claim for the R&D expenditure must be made within 12 months of the end of the accounting period in which the expenditure was incurred. Ideally, it would be made with the corporation tax return for the period.

A company must specify in respect of each instalment whether the instalment, or a portion of the instalment, is to be

• treated as an overpayment of tax and offset against tax liabilities or

• paid to the company by Revenue.

The specification in respect of each instalment must be made on the Form CT1 when a company is making a claim for the credit.

Where a company elects to have the R&D corporation tax credit, or a portion of it, offset against its tax liabilities, and an amount of credit remains following the offset (known as ‘the excess’), the company can make a claim to have the excess, or part of it, surrendered to key employees.

Pre-filing notification requirement

For accounting periods beginning on or after 1 January 2024, companies claiming the credit for the first time must notify Revenue before making their claim. This requirement also applies to companies which have not claimed the credit in the previous three years.

This advance information includes a description of the R&D activities being undertaken, together with the number of employees involved, the number of R&D projects and details of expenditure covered by grants.

Companies must file a pre-filing notification form through MyEnquiries via ROS at least 90 days before the claim for the credit is made.

Budget Changes

Ireland’s Budget 2026, announced on 7 October, introduced a suite of meaningful improvements to the R&D tax credit scheme. These measures were aimed at keeping Ireland highly competitive for R&D investment and supporting businesses amid global tax changes.

The key highlights announced were:

• an increase in the rate of the R&D Tax Credit from 30% to 35%.

• an increase in the first-year payment threshold from €75,000 to €87,500 

• where an employee spends at least 95% of their time on R&D, 100% their emoluments will be allowed as qualifying costs.

Conclusion

The credit rate has climbed from 25% a couple of years ago to 30% in 2024, and as accounted in the Budget recently, the rate is to increase to 35% from 2026 onwards, marking a 10% jump in the credit’s value over two years.

Ireland’s R&D tax credit scheme has always been a pillar of the country’s pro-investment tax offering, and the latest Budget enhancements reinforce its strength.

In summary, companies will now enjoy a 35% credit rate, larger upfront refunds (up to €87.5k), and easier administration for certain claims – changes that together make the incentive more accessible and valuable.

It is important to factor these changes into planning. Companies might want to accelerate some activities to capitalise on the higher rate, or review whether any additional costs can be brought into the claim under the new rules.

Likewise, companies that haven’t utilised the R&D credit may consider the improved benefits being worth pursuing a claim or starting the innovative project they have been considering.

Overall, the tone from the Government is very supportive of innovation – and that’s a win-win for businesses and Ireland’s economy.

DISCLAIMER This article does not constitute professional accounting, tax, legal or any other professional advice. No liability is accepted by Taxkey for any action taken or not taken in reliance on the information set out in this presentation. Professional accounting, tax, legal and/or any other relevant professional advice should be obtained before taking or refraining from any action as a result of the contents of this article.