8TH JULY, 2020

How Does R&D In Ireland Compare To Other EU Countries?

To innovate or not to innovate?

With COVID-19 hitting Irish businesses hard, many have had to put their plans for innovative projects on the back burner as they simply try to stay afloat. However, for some businesses it’s quite the opposite, and the coronavirus pandemic has given rise to growth and diversification. In fact, certain sectors have found this to be the perfect time to think outside the box, including restaurants, healthcare organisations and retailers to name just a few.

These are incredibly challenging times, and if Ireland is to succeed both economically and socially in the years to come then a concerted programme of innovation is vital. The fact is, coronavirus is here to stay for a while at least, and when you throw in Brexit negotiations on top it becomes clear that companies need to adapt.

Weathering the storm

Luckily, while other countries were not in the best place economically even before COVID-19, this isn’t the case in Ireland. The country was - until very recently - doing well, with relatively little national debt and the lowest unemployment rate on record since January 2007 at 4.8%.

According to most recent figures published by the Department of Business, Enterprise and Innovation, Irish government investment in research and development in 2019 amounted to €808.1 million in 2019. This is an increase of 3.6% compared to 2018 when it stood at €765.7 million. With the mayhem of coronavirus and the emergence of a ‘new normal’, stats due to be released later this year will certainly be interesting.

What’s going on in the rest of Europe?

According to the European Commission’s latest European Innovation Scoreboard (for 2019), the rate of innovation across the EU specifically has been increasing for the last four years in a row. At the end of 2019, Sweden was leading the way, followed by Finland, Denmark and the Netherlands. On average, since 2011 the EU's innovation performance has increased 8.8%, surpassing the United Stated at global level too.

Of course, who knows what the scoreboard will look like next year once the whole of Europe has taken a battering by COVID-19. But it’s worth taking heart from the fact that although Ireland wasn’t in the top 4, prior to the coronavirus outbreak the country’s GDP was rising fast. As things return to normal, it’s important that the pressure is kept up in R&D spending to keep the Republic competitive.

Before the pandemic hit, Ireland’s expenditure on research and development was about 1.3 to 1.5% of GDP. To give some context, the EU average was 2.03%. Previously the goal was to get Ireland’s R&D investment up to 3% by the end of 2020, but of course COVID-19 means that’s extremely unlikely to happen for now.

Ireland is still a big draw for innovative businesses

The Republic of Ireland has always been a popular part of the world for people to live and work. Indeed, a large amount of foreign investment has taken place here largely because of the country’s very favourable tax regime. Seventy-two other countries share double treaty agreements with Ireland, and the Corporate Tax rate of 12.5% is the lowest in the EU.

Other advantages of carrying out businesses activities in the Republic include an attractive holding company regime plus tax incentives for some types of investment. For instance, Irish-resident companies that undergo eligible research and development activities can benefit from the Knowledge Development Box scheme. This allows qualifying profits to be taxed at a low rate of only 6.25%.

Other plus points of living and doing business in the Republic of Ireland include:

  • Setting up and running a business is relatively easy compared to other countries
  • There are a number of start-up grants and schemes to help SME
  • Ireland will remain in the EU, giving it ready access and close proximity to EU markets
  • The country is politically stable
  • Since the UK left, Ireland is now the only English-speaking country in the EU
  • Ireland has a robust legal framework for the protection and development of intellectual property rights
  • There’s a friendly, laid back and welcoming culture here, plus a young workforce (the average age of people in Ireland is 37)
  • A strong emphasis put on collaboration between companies and academia
  • The population as a whole is well educated, with round 30% of Irish third level students having studied science, technology, engineering and maths (STEM) subjects

Has your Irish business engaged in an innovative project lately?

Perhaps it has developed a brand new product, process or services, or made notable upgrades an existing one? If so, was a specific technological or scientific uncertainty also addressed? Then R&D Tax Credits may well be due.

The Revenue-backed R&D Tax Credits scheme is open to any Irish company, regardless of industry or profitability. It also doesn’t matter if the project was a success or not, which makes the scheme very attractive. Plus, as much as €37.50 for €100 of R&D expenditure could be claimed back so we’re not talking small change here. The benefit is offered either as a reduction in Corporation Tax or as a cash lump sum, and eligible costs range from staff wages, materials, prototypes, testing, overheads and more.

As a leading R&D tax and grant processing specialist we’ve seen an incredible 70% increase in calls and enquiries relating to R&D tax claims across both our Dublin and UK bases compared to this period in 2019. Taking the best expert advice is key, particularly during these unprecedented times.

If you would like to find out more about R&D Tax Credits, including whether your business qualifies and how to apply, please do have a look at our R&D Tax Credits page. You can also use our great value Tax Cloud portal too - simply enter your own figures to see what you’re likely to be owed and make a fully supported claim online. There’s no fee to use the portal either until you’ve received what you’re owed - so no risk!

Start your claim using the Tax Cloud portal for businesses today, or you can contact us on +353 1 566 2001. There’s also the option to drop us a message if you’d prefer.

Barrie Dowsett, ACMA, GCMA
Author Barrie Dowsett, ACMA, GCMA CEO, Tax Cloud
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Meet some of the team behind Tax Cloud

Barrie Dowsett Barrie Dowsett ACMA CGMA Chief Executive Officer
Jillian Chambers Jillian Chambers Technical Analyst/Writer
Lauren Olson Lauren Olson Technical Analyst Manager
Rabia Mohammad Rabia Mohammad Corporate Tax Associate