Global investments and innovations incentives

New measures not announced in Budget 2026

The Finance Bill has provided clarity on a number of points. It outlines legislation for the new R&D tax credit rate of 35% and the increase in the first-year payment threshold to the higher level of €87,500. It sets out the measure to allow companies with staff spending not less than 95% of their duties in the carrying on of R&D activities to be claimed at 100%. It has also provided clarity for when these new measures come into effect, for accounting periods ending on or after 31 December 2026.

The Bill provides certainty to 766D claimants on the construction of laboratories. This is welcome as companies previously had to demonstrate a link to a laboratory being an industrial building to ensure they qualified for industrial building allowances.

The Bill outlined new mechanisms by which the claim is filed. Upon enactment, the taxpayer must indicate whether each instalment, or a portion thereof, should be treated as an overpayment of tax or paid to the company by Revenue.

The Bill did not contain any reference to the much-anticipated R&D Compass.

Outside of R&D tax credits, provision was made for the new 40% enhanced Film Tax Credit for visual effects projects. The Bill outlines the definition of visual effects as “the use of computer technology to digitally create or manipulate content whether such content is for inclusion in a film or within filmed footage for inclusion in a film”.

For the Digital Games Tax Credit, the Bill sets out the six-year extension of the scheme and for post-release work to be claimed. An interim certificate will be mandatory for companies looking to apply for this tax credit.

Who will be affected and when?

• Innovative businesses conducting qualifying R&D will benefit from an increased R&D tax credit rate of 35%.
• The increase in first year payment threshold to €87,500 will provide accelerated cash-flow for companies with claims of less than €175,000.
• Companies with staff engaged in intensive R&D activities can potentially claim 100% of those staff time inputs.
• Film production companies engaged in visual effects work can claim a 40% rate of relief eligible expenditure (up to €10 Million).
• Companies that claimed Digital Games Tax Credit on a game can now claim costs of Post-Release Content work.
  

What now?

No changes to the mechanisms of the R&D tax credit scheme have been outlined. To take full advantage of these incentives, companies must review their existing claim processes and controls. The importance of having robust review and documentation processes in place is critical. Even as moves are made toward simplification of the scheme, this will ensure that the full and correct extent of R&D expenditure is identified and is fully defensible in the event of any Revenue scrutiny.

With changes to the Film tax credit and the Digital Games credit announced (subject to EU approval) it is highly recommended to review potentially eligible expenditure and activities to ensure that planned projects can maximise potential benefits.

Our view

Overall, the changes are welcome. The changes outlined in the Finance Bill, especially the 35% R&D tax credit rate, consolidates Ireland’s position as one of the most attractive R&D incentives regimes globally. There was no mention of the R&D Compass in the Bill. We look forward to engagement with the Department and relevant industry stakeholders on the consideration of targeted changes to the R&D Tax Credit to better align with industry practices, specifically in the areas of outsourcing and qualifying expenditure definitions, and the potential for new innovation incentives. This was an announcement that has driven much discussion since the budget, particularly around references to changes to third party expenditure, and hope that this will include amendments to current rules to allow related party expenditure on outsourced R&D to qualify for the R&D tax credit.

Amendments to the legislation to clarify the qualifying nature of the cost of construction of laboratories for inclusion in R&D tax credits is welcome. However, excluding costs which are incurred on the construction of any part of the laboratory for use as an office or for any purpose ancillary to the purpose of an office, should be questioned. As this would appear to determine that desk-based research, or analytical work, codification of R&D experimental data etc. would not meet the definition of qualifying R&D. In an increasing digital environment, this would appear completely at odds with wider Government policy and with the reality of R&D in modern laboratories.

While the expansion of the Digital Games Tax credit is welcomed, once again, we are disappointed that another Finance Bill has failed to address inherent flaws in the scheme that make it difficult to claim. This severely limits its potential to support the development of a valuable industry in Ireland.