Budget 2025: Enhancing Ireland’s R&D tax credit

For many life sciences companies investing in Ireland for the first time, the Research and Development (R&D) tax credit is the single most attractive feature of our tax system. It provides much needed cash for the business in that crucial pre revenue stage. For more advanced stage companies, including many successful Irish indigenous businesses, the R&D tax credit is equally beneficial, providing a significant incentive to those businesses to locate and retain their R&D activities here.

Budget 2025 is the perfect opportunity to further enhance a tax incentive that has been consistently proven to more than pay for itself.

How will R&D tax credit enhancements benefit life sciences?

Most companies in the life sciences sector incur significant expenditure on both people and assets. The R&D tax credit can generate substantial savings that relieve cost pressure for companies, whether they are pre-revenue or at a more developed stage.

With the global minimum tax rate of 15% now implemented in Ireland for larger groups, we are less competitive on the corporation tax front. The Knowledge Development Box has failed to gather traction for several reasons, meaning that the R&D tax credit takes on added importance.

Two particular enhancements will further boost Ireland’s attractiveness as a place to locate high value-add, innovative activities. Such enhancements will benefit all sectors but particularly an innovative one such as life sciences. 

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Research & Development (R&D) tax credit regime

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Change 1: Increase the R&D tax credit to 35%

Last year’s increase in the R&D tax credit to 30% was very welcome although for larger groups its interaction with the new global minimum tax rules meant that the status quo was maintained.

Many European countries offer an equally attractive R&D tax credit regime; we need to make sure that Ireland’s equivalent stands up well in comparison.

An increase in the R&D tax credit to 35% would provide a boost to smaller groups carrying out R&D in Ireland and mean a real increase in the relief for larger groups within the ambit of the new global minimum tax rules.

An increase in the credit should not cost the Exchequer in real terms because the extra activities generated should mean that it can more than pay for itself.

Ireland needs to look at attracting further high value-add activities as part of its long-term strategic planning. Any initial investment required would have a short payback period, with the Exchequer in a particularly strong position to make that investment.

Change 2: Shorten the refund timeline from three years to two

Finance Act 2022 introduced amendments that brought the R&D tax credit into alignment with Pillar Two, specifically the definition of a “qualified refundable tax credit.” 

As a result of these changes, Revenue now pays out the R&D tax credit using a 50-30-20 split over a three-year period. Receiving 50 percent of the credit in the first year was a big boost for many businesses, including many in the life sciences sector with heavy investment requirements.

Given the robust state of the Exchequer, Ireland now has the ability now to reduce the payment period to two years. Companies could receive 50% of the credit in year one and 50% in year two, significantly boosting cashflow and enabling further investment in R&D.

Indeed, the change would have no net cost to the Exchequer other than cashflow, but for businesses, it would be a significant boost. Now is the perfect opportunity now to make impactful changes to help secure the long-term future of a key part of the economy.

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