The Irish Government has launched the world’s first Organisation for Economic Co-operation and Development compliant tax regime for Intellectual Property (IP) as of 1st January 2016 called the “Knowledge Development Box” (KDB). Many of the leading global corporations in technology and science sectors that are involved in the commercialisation of intellectual property have selected Ireland as their preferred location for doing business within Europe and on an international level.
How does the Knowledge Development Box work?
Ireland’s KDB regime taxes profits in connection with qualifying assets generated by associated Research and Development (R&D) activity carried out by an Irish company at a 6.25% tax rate. Under the KDB, an effective corporation tax rate of 6.25% is applicable to the portion of income derived from the IP and which corresponds to the R&D expenditure directly incurred by the company (including outsourced R&D expenditures) as a proportion of the overall expenditure incurred. As a result, companies directly spending more on R&D will benefit more than companies conducting R&D outside the European Union or in related companies within a group, or those simply acquiring IP without R&D. In other words, the lower corporation tax rate is only applicable to income that is exclusively derivable from expenditure directly incurred by a company in carrying on R&D within the EU that leads to the creation of specific IP.
What qualifies under the programme?
Qualifying assets for these purposes are defined as patents including supplementary protection certificates, copyrighted software and, in certain circumstances, inventions that are certified by the Controller of Patents, Designs and Trade Marks as being novel, non-obvious and useful. Qualifying expenditure includes own account expenditure and R&D activities carried on within the EU. Expenditure on outsourced R&D also qualifies, where the outsourced work is performed by unrelated third parties. Income that can qualify for the KDB includes any royalty, sales of a product or service, grant of a licence, insurance, damages or compensation relating to the qualifying IP. Qualifying profits for these purposes are calculated by reference to the total income derived from the qualifying assets expressed as a proportion of the company’s qualifying R&D, plus any uplift expenditure over its total R&D costs incurred in developing the qualifying assets.
R&D activities must be systematic, investigative or experimental activities in a field of science or technology, and which involve basic research, applied research, or experimental development. In addition, they must seek to achieve scientific or technological advancement; and involve the resolution of scientific or technological uncertainty.
Braithwaite Technology Consultants Ltd. can assist you in obtaining tax credits for research and development activities. Whether your work involves basic research, applied research, or experimental development, Braithwaite can take the uncertainty out of the filing process and get you the credit you deserve for your innovation.
For a detailed evaluation of your eligibility, please contact the professionals at Braithwaite:
Victoria Procunier
Senior Business Consultant
Mobile: +353 85 216 6966
Email: vprocunier@braithwaite.ie