Irish Corporate Tax Reliefs - Research and Development and Intangible Asset reliefs
Ireland is an attractive location for International Corporates considering relocating part of their trading activities to Ireland.
The ease of doing business, access to an extensive treaty network, various withholding tax and Capital Gains Tax exemptions for non resident individuals and companies and of course the 12.5% rate of Corporation tax have all helped Ireland establish itself as a location of choice for many companies.
In this brief article, we will concentrate on two specific reliefs available in Ireland for companies engaged in research and development activities or who are considering relocating Intellectual Property to Ireland.
Research and Development scheme
The research and development credit scheme is a very advantageous and favorable tax relief available in Ireland for Corporates.
The definition of qualifying research and development activities is extensive and includes systematic, investigative or experimental activities in the field of science or technology. The R&D definition is broad therefore the credit is not confirmed exclusively to pharmaceutical companies and many companies engaged in other fields such as manufacturing and engineering who conduct R&D activities can qualify for the relief.
The R&D credit is an annual credit available at 25% on the qualifying R&D spend. Normally you compare the company’s expenditure in a particular year to the base year in 2003 in order to determine the qualifying R&D. Favorable changes in our recent finance budget now mean that the first €200,000 of qualifying spend automatically qualifies regardless of the base year spend in 2003.
The availability of the R&D credit mean that Corporates can obtain relief at 37.5% on qualifying research and development spend (i.e. this consists of the 12.5% corporation tax deduction for the expenditure and the 25% R&D credit).
This R&D credit can be used to reduce current and future corporation tax liabilities of the company or can be repaid directly by Revenue over a period of approximately 33 months where there are insufficient profits in the company to absorb the credit. The credit therefore represents a real cash saving to the company
The R&D spend is a worthwhile relief for companies looking to use Ireland as a base to conduct its research and development activities.
Intangible Assets Relief
Another very favourable scheme available to Irish Corporates is the Intangible Asset Scheme.
This relief allows a company to claim Capital Allowances in respect of intangible assets that are recognized as intangible assets under generally accepted accounting practice.
The following is a list of Specified Intangible Assets included in Scheme
Any patent, registered design, design right or invention
Any trade mark, trade name, trade dress, brand, brand name, domain name,
service mark or publishing title
Any copyright or related right within the meaning of the Copyright
and Related Rights Act 2000.
Any goodwill related to (a) - (c) and directly attributable
Companies can claim the relief over 15 years or over the accountancy write off period of the assets whichever is shorter. The relief can be written off against the income from the trade in which the intangible assets are used subject to some restrictions.
Many companies have therefore relocated their IP into Ireland and using the Irish Corporate as a basis for licensing IP around the globe to avail of the Intangible Asset Relief and low corporate rates available in Ireland.
It is important however that any activities in Ireland are deemed to be from an active trade where there are sufficient people and activity in Ireland to constitute a trading venture. This is essential to ensure that the profits qualify for the 12.5% rate of corporate tax rather than the 25% rate of Corporation Tax than applies to passive income.
These two reliefs further enhance Ireland’s attractiveness as a place to locate High Tech and Research-type businesses.