Global investments and innovations incentives

What has changed since Budget 2027? 

The Finance (No 2) Bill 2026 has clarified a number of the amendments made in the announcement of Budget 2027. 

It confirms:

• the increase in limits for subcontracted R&D costs to third parties and universities, rising to the greater of 20% (up from 15%) of qualifying in-house expenditure or €200,000 (from €100,000)
• the increase of the first-year payment threshold to the higher value of €105,000 (from €87,500)
• a change in how the R&D tax credit is recognised for the purposes of preliminary Corporation Tax, and
• the provision of an additional 5% of qualifying wage costs to recognise non-qualifying overhead costs incurred in undertaking R&D.

The Bill also sets out the extension of the Knowledge Development Box to 2032 and enables companies a time-limited window to opt out of the regime.

The Department of Finance has indicated that technical work is ongoing on the development of legislation to potentially provide for regulated clinical trials to satisfy the science test for R&D purposes. If ultimately included in legislation, this will recognise R&D work undertaken by Irish companies as part of global trials and significantly reduce the administrative burden on these companies. The amendment to introduce this potential legislation will be proposed at Committee Stage.

Who is affected, and when?

Companies claiming the R&D tax credit will benefit from the 5% increase to their qualifying wage cost base, provided it is matched by non-qualifying costs. This will apply in respect of any accounting period where the specified return date is on or after 23 September 2028.

The increase in the subcontracting limits to the greater of 20% of qualifying in house expenditure or €200,000 will positively impact companies that are currently exceeding this threshold and will enhance the R&D ecosystem in Ireland. Improvements to how R&D tax credits are recognised for the purpose of preliminary taxes will allow a company, where it specifies that an instalment is to be treated as an overpayment of tax, take a second or third instalment due to the company from a prior R&D tax credit claim for the purposes of calculating preliminary tax.  Smaller claimant companies will benefit from the increase in the first payment threshold from €87,500 to €105,000. 

Companies utilising the KDB will benefit from its extension to 2032 and importantly for companies no longer benefiting from inclusion in the regime, they now have the option to opt out of the KDB.

Clarification on work included in regulated clinical trials will provide greater security for companies undertaking such work such as those in the Pharma, Med Device, Food and Nutraceutical sectors, but also those associated with the provision of technology solutions and qualifying Contract Research Organisations working in Ireland. We await finalised wording of this amendment.

What does this mean for businesses?

Overall there were a number of positive measures introduced in the Bill that will increase the R&D claim value and certainty that companies have in claiming R&D tax credits. The measures are relevant to all companies undertaking R&D in Ireland from indigenous start-ups to multinationals who will benefit from an increase in their qualifying cost base. Companies that are currently exceeding their subcontracting spending limits will benefit from an increase in this cost base. The changes to the first-year repayment will significantly benefit indigenous small and scaling companies, who will benefit from increased cashflow.

Companies engaged in clinical trials should review the final wording that will be introduced at Committee Stage.

Companies that wish to continue claiming the KDB will benefit from the certainty that the claim is continuing to 2032. While companies that no longer achieve a cost benefit in claiming the KDB now have the opportunity to withdraw their assets from the scheme.

What should businesses do 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 and the importance of having robust review and documentation processes in place remains 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.

For companies claiming the KDB, a cost benefit analysis of the assets being claimed in the scheme is recommended. Where the cost and administrative burden of claiming the KDB outweighs the benefits being achieved, businesses should consider adopting the time-limited opportunity to opt out of the scheme.

Our view

The Bill sets out further enhancements to Ireland’s incentives regime that are essential to ensure that Ireland’s competitiveness as a location for world leading R&D is maintained. The commitment of the State to the incentives that are the keystone to attracting ongoing investment in high value R&D activities are welcomed and must be continued in future budgets. 

The increase to the qualifying cost base through the 5% enhancement to wages and the increase in subcontracting caps, makes the Irish regime more attractive for companies undertaking R&D. Continued work on the clinical-trial proposal is a significant development. If this serves to provide greater certainty for claimants, and broadens the scope of qualifying activities, it will make Ireland a highly attractive location for new investment in clinical trial activity. This coupled with the changes to subcontractor expenditure limits will increase the cost base for these companies and help to secure valuable investment in Ireland.

Providing for only an extension of the KDB to 2032 appears to be a missed opportunity to enhance and improve the regime. It is currently falling short of achieving its purpose and requires a radical overhaul if it is to encourage companies to increase investment in the generation of IP in Ireland. It is helpful that companies can now opt out of the regime where they no longer wish to adhere to the administrative requirements of the regime; however, this is a time limited opportunity. The opt-out of the KDB regime will be available to a relevant company in their first accounting period commencing on or after 1 January 2027 and before 1 January 2028.

Deloitte will continue to provide input into the ongoing development of the wording of the amendments relating to clinical trial activities. This is an area that we recognise has having a significant impact on investment into Ireland and represents a strategically important area for the State and the wide range of companies that may benefit, especially those operating in the Life Science sector. 

The enhancements to the R&D tax credit continue to increase the attractiveness of Ireland as a location for R&D investment, however, further enhancements can be made to Ireland’s incentives to ensure its ongoing competitiveness. Amendments to the R&D tax credit to allow for the inclusion of related party spend would see Ireland benefit from the increased generation of IP and drive future economic growth. There is an ongoing need for changes to the digital gaming tax credit to enable companies to utilise this incentive and increase indigenous and FDI expenditure in this area in Ireland.