• Ireland IP and R&D regimes


    Ireland's IP regime

    Ireland has implemented a rather different Intellectual Property (IP) scheme to the ones currently adopted by other European countries like Luxembourg and Cyprus. Whereas Luxembourg IP regime and Cyprus IP regime provide for an 80% exemption of IP profits, Ireland provides a deduction of interest and tax depreciation equal up to 80% of the IP profits.

    Ireland's IP scheme is a scheme of deduction of interest suffered to acquire the IP and capital allowances (tax depreciation) on capital expenditure incurred by companies on acquiring the IP. The deduction is available for offset against income generated from exploiting IP assets or from the sale of goods and services that derived the greater part of their value from the IP. The deduction is capped at 80% of this income. Excess deductions can be carried forward indefinitely and utilised against IP profits in future years.

    The above deductions together with Ireland's 12.5% corporation tax rate lead to an effective tax rate of 2.5% (assuming maximum deduction for allowances and funding costs).

    • Qualifying IP rights - the definition of IP rights is broad and includes patents and registered designs, trademarks, brand names, know how, domain names, copyrights, service marks and publishing titles, certain computer software, in-house technology and processes and goodwill dierctly relating to the above IP assets.

    • Tax depreciation - a straight line method is allowed in line with the accounting treatment. Alternatively, a company can elect to apply a tax depreciation over a 15 year period, at a rate of 7% for years 1 - 14 and 2% for year 15. No balancing allowance/charge event will occur if the IP is sold 10 years after acquisition.

    • Acquisition from group company - IP acquired from another group company qualifies for the above scheme as long as this is done on an arm's length basis i.e. at pure commercial terms. Acquisitions from another Irish group company will only qualify if the companies jointly elect to disapply the capital gains tax group relief provisions (which can potentially trigger a capital gains tax liability).

    • IP Holding Companies - a holding company which disposes shares in a subsidiary trading company resident in Ireland or in the EU is not liable to capital gains tax on the disposal if the participation exemption criteria are met. In this way, an IP holding company can achieve a tax free exit from Ireland by disposing the IP company.

    • Stamp duty - IP (as defined above) also qualifies for Irish stamp duty exemption.

    Ireland's R&D regime

    Ireland's IP regime is further complimented by a Research & Development (R&D) regime.

    Under the R&D regime, companies are entitled to a tax credit of 25% on the first €100,000 of R&D expenditure incurred on or after 1 January 2012 and on any incremental R&D expenditure incurred in excess of the base year of 2003. The base year means that if a company spends more on R&D in the current year than it did in 2003 a tax credit is available.

    Therefore for a company establishing in Ireland after 2003, the base year expenditure would be zero and all qualifying R&D expenditure incurred should qualify for the R&D credit.

    The credit is deductible in full in the year the expenditure is incurred and is in addition to the normal trading deduction (12.5%) for such costs. Therefore, the effective value of the tax relief available is 37.5% on income taxable at 12.5%.

    The R&D regime is flexible so that the IP resulting from the R&D does not need to be owned by the Irish company.

    In the event that a company does not have sufficient corporation tax to absorb the credits then it can result to a tax refund over a period of 3 years subject to certain limits. In addition, provided certain conditions are satisfied, a company can use the credit to reward 'key employees' involved in R&D (i.e. employees can use the credit to reduce their income tax liability).

    For the purposes of the regime, R&D means basic research, applied research or experimental development that seeks to achieve scientific or technological advancements and the resolution of scientific or technological uncertainty. The definition is so broad that covers a wide range of activities carried out in almost any industry.

    Other IP regimes:

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  • The information provided in this article is for general information purposes only. The information is not intended to be comprehensive or to include advice on which you may rely. You should always consult a suitably qualified professional on any specific matter.

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