Global Investments, Innovations and Incentives

Key measures

The Tánaiste set out that Budget 2027 seeks to make it easier for businesses to invest, innovate and grow, safeguarding and enhancing the competitiveness of our enterprise support regime. Several changes have been announced to support investment, research, and the growth of Irish businesses.

The R&D tax credit is identified as having been the cornerstone of Ireland’s corporation tax policy for over two decades. A number of enhancements were announced for companies carrying out qualifying R&D; these included limits for R&D activities subcontracted to third-level institutions and unconnected third parties. The limits are to increase from 15% to 20% and from €100,000 to €200,000. The first-year payment threshold for the R&D tax credit is also to rise from €87,500 to €105,000. This will help to improve cash flow for companies engaged in smaller R&D projects.

A further welcome announcement is the introduction of a provision which will allow claimant companies to increase their qualifying cost base by 5% of qualifying R&D wage costs. The purpose of this measure is to recognise that R&D active companies incur additional supporting costs that are not within the definition of qualifying R&D expenditure.

Importantly for the life science industry, the budget announced that regulated clinical trials will be deemed to satisfy the credit’s science test. Further details are expected in the Finance Bill, but if this includes Phase 4 trials this could be significant.

In addition to changes announced in the R&D tax credit, the Budget also set out that the Knowledge Development Box is to be extended for a further five years. Existing claimants would also have a limited option to leave the regime for all qualifying assets.

Of particular interest to indigenous companies is the announcement of a €1 billion investment programme to help Irish companies scale, working in coordination with Enterprise Ireland. The Minister also signalled a wider assessment of grants, tax incentives and business development programmes.

Following on from the announcement of the R&D compass in last year’s Budget, a holistic assessment of the various grant schemes, enterprise tax incentives and business development programmes was announced.

Who will be affected?

The measures are relevant to all companies undertaking R&D in Ireland from indigenous start-ups to multinationals. However, of particular note are changes relating to indigenous small and scaling companies, who will benefit from increased cashflow and potential supports to assist in scaling businesses. Companies in the Life Science sector who are involved in clinical trials will also be able to claim costs relating to these clinical trials with greater efficiency.

What now?

Businesses should review planned R&D projects, particularly work subcontracted to universities or third parties, against the proposed higher limits. Those expecting smaller credit payments should assess whether the increased first-year threshold could change cash-flow forecasts. Clinical-trial teams should identify which projects are regulated, while awaiting the precise legislative test.

Companies claiming the Knowledge Development Box should consider whether continued participation remains appropriate, but should not assume the announced opt-out is available until its conditions are published.

To ensure that your company can avail of the enhancements fully, the practical priority remains to keep clear records of all qualifying activities, costs and ownership of intellectual property.

Deloitte's view on Budget 2027 measures

Enhancements to Ireland’s incentives regime are welcome and are essential to ensure that Ireland’s competitiveness as a location for world leading R&D is maintained. The clinical-trial proposal is a significant development for the valuable Life Science sector in Ireland. If enacted as described, recognising a regulated trial for the science test will incentivise companies to conduct Irish work within international programmes.

At present companies operating in this sector are restricted from entering certain phases of clinical trials. As part of the simplification of claiming these costs we would welcome a wider range of clinical phases to be included in qualifying claims, thereby driving increased investment from Ireland in clinical trials. However, even when coupled with enhancements to third party subcontracting, this falls short of amendments to related subcontractor expenditure which would have significantly increased the attractiveness of Ireland as a location to lead clinical trial work.

We have noted above the extension of the KDB, however, this is a regime that is not fit for purpose and need a radical overhaul. The most welcome announcement relating to the regime was that companies now have the option to opt out. As part of the holistic assessment of the various grant schemes, enterprise tax incentives and business development programmes, we would hope that changes to this potentially valuable incentive will be achieved.

The Budget contained positive announcements for start-ups, SME’s and rapidly scaling Irish companies through a combination of amendments to the R&D tax credit to increase cashflow for R&D projects and with the announcement of ISIF’s €1 billion investment programme, aimed at creating the next generation of large Irish companies. This represents a unique opportunity to support companies in scaling internationally and driving the development of an innovation ecosystem across Ireland.