Impact of New 15% Corporate Tax on R&D Tax Credits for Small Irish Businesses

Introduction

Ireland has long been a haven for multinational corporations, owing largely to its competitive corporate tax rate of 12.5%. The country has also been proactive in offering a range of tax incentives to foster innovation, most notably the 25% Research and Development (R&D) tax credit and the Knowledge Development Box (KDB).

However, a recent OECD-brokered agreement to implement a global minimum corporate tax rate of 15% has raised many questions about the future of these incentives.

Let's delve into how this tax change might impact small businesses in Ireland, particularly in relation to R&D tax credits.

What is the New 15% Corporate Tax Rate?

Brokered by the OECD, the global minimum corporate tax rate aims to discourage profit-shifting and tax avoidance by multinationals. Ireland has committed to adopting this new 15% rate starting from next January.

Importantly, the Department of Finance has revealed that companies with an annual turnover below €750 million would still be eligible for the existing 12.5% corporate tax rate.

Impact on R&D Tax Credits and KDB for Large Corporations

One immediate casualty of this new tax change has been the attractiveness of Ireland's R&D tax credits and KDB for larger corporations. The Department of Finance has admitted that the new global deal will "reduce the attractiveness" of these incentives. For instance, the KDB, which allowed firms to pay a 6.25% tax rate on income earned from R&D assets, will now be less appealing, especially when the global minimum tax rate takes effect.

What About Small Businesses?

The good news for small businesses is that they will not be directly impacted by the new 15% corporate tax rate if their turnover is below €750 million. This means they can continue to avail themselves of Ireland's 12.5% corporate tax rate and, by extension, the existing R&D tax credits.

Implications for Small Businesses:

Stability in Tax Planning: Small businesses can breathe a sigh of relief as the existing 12.5% rate provides stability, particularly for long-term R&D projects.

Indirect Impact: While the rate change may not directly affect small businesses, changes in the broader economic environment, investor behavior, and policy focus could indirectly impact them.

Potential for New Incentives: With large corporations possibly less enticed by the Irish tax environment, the government may channel its focus towards encouraging SMEs to undertake more R&D projects, potentially offering more robust incentives.

Resource Reallocation: With bigger corporations potentially receiving fewer incentives for R&D, there could be more public resources available for incentivising small businesses to engage in innovative projects.

Investment and Partnership Opportunities: Smaller firms might find increased investment or partnership opportunities as larger corporations seek to collaborate with agile, innovative companies that can still benefit from the existing R&D tax incentives.

Conclusion

While the implementation of the global 15% minimum corporate tax rate has caused ripples of concern among large corporations, small businesses in Ireland have been spared the immediate impact. They can still benefit from the 12.5% corporate tax rate and the existing R&D tax credits. However, the landscape is dynamic, and shifts in global and national policies could bring about changes that small businesses should monitor closely. For now, though, the message for small businesses engaged in R&D is one of cautious optimism.

The new tax regime may close one door but could potentially open several others that lead to a more innovation-friendly environment for smaller companies. Therefore, small businesses should remain alert to new opportunities and stay engaged in the national dialogue around taxation and innovation.

Contact us to discuss any aspect of R&D tax incentives for your innovative company

There are a number of state-backed financial schemes designed to assist companies with the cost of innovation, notably R&D Tax Credits and R&D Grants. However, putting together an application for either relief can be a tough process and there are many pitfalls, which is why you should use a highly skilled R&D tax relief firm such as ourselves.

Myriad Associates (developers of the Tax Cloud portal) is on hand to help with every aspect of putting your R&D tax relief claim together. From our initial meeting to crafting the perfect narrative report, right through to completion our team of R&D tax relief specialists and accountants are proud of their 100% success rate in getting Irish businesses the reliefs they deserve.

Why not try out our Tax Cloud portal for businesses and see what you could be owed, or call our Dublin-based team on +353 1 566 2001. Alternatively, please use our contact page and we'll be pleased to get back to you.

Author Barrie Dowsett, ACMA, GCMA CEO, Tax Cloud