The winds of change are blowing through Ireland's R&D tax landscape, and Finance Minister Paschal Donohoe's recent announcement at the American Chamber of Commerce Ireland (AmCham) annual dinner has set the stage for potentially significant enhancements to the existing scheme.

Speaking to industry leaders in May, Minister Donohoe made it clear that an enhanced version of Ireland's R&D tax credit is under active consideration for this year's budget: "Receiving direct feedback from industry informs policy considerations, and ensures that the support we offer to businesses evolves alongside the sector."

The Current Landscape and Its Limitations

To understand where we're heading, let's first acknowledge where we stand. The government already boosted the R&D tax credit rate from 25% to 30% in Budget 2024 – a welcome improvement that many businesses have already benefited from.

But here's where things get interesting: industry feedback has identified some significant gaps that are holding Irish businesses back, particularly smaller enterprises.

The Outsourcing Challenge That's Hampering Growth

One of the most pressing issues flagged by AmCham officials is Ireland's restrictive approach to outsourced R&D costs. Currently, firms can only claim relief on 15% of outsourced research expenditure, capped at €100,000.

For context, this puts Ireland at a distinct disadvantage compared to our European neighbours. Denmark has no restriction on subcontracting R&D costs. France, Greece, Austria, and Germany all have higher limits than Ireland's current threshold.

They suggested that raising the outsourcing limit from 15% to 25% would foster increased collaboration between SMEs and research institutions, generating productivity gains and enhancing smaller firms' resilience.

The relatively modest cost of addressing the outsourcing limitation (€7.3 million) suggests this could be a quick win in the upcoming budget.

Why This Matters for SMEs

This limitation doesn't just create administrative headaches – it's creating a real barrier to growth for smaller businesses. SMEs often rely more heavily on outsourced R&D partnerships with research institutions and specialist providers. The current restrictions effectively lock many of these businesses out of the full benefits of Ireland's R&D incentives.

What Could Be Coming Next?

Beyond fixing the outsourcing issue, there are even bolder proposals on the horizon. AmCham Ireland has urged the government to introduce a separate innovation tax credit at 35% to provide targeted support for digital transformation and AI innovation. These are areas where Irish businesses need to stay competitive globally.

However, Enterprise officials have estimated the potential costs:

• A new innovation tax break at 15%: €137 million
• Applied at 30%: €274 million
• Increasing the outsourcing limit to 25%: €7.3 million

What Should Your Business Do Now?

While we await the final budget announcements, now is the perfect time to get started on your R&D tax credit claim under the current scheme.

The first thing to do is check whether you need to submit a Pre-Filing Notification. This is an additional deadline for first-time claimants and those who have taken a break from claiming for three or more years.

You’ll also need to check if your R&D projects qualify and you have sufficient records to make a claim.

Getting Ready for Change

Ireland is committed to remaining competitive and supporting business innovation. Whether you're a multinational looking to enhance your R&D operations or an SME seeking to collaborate more effectively with research partners, these potential changes could significantly impact your tax position.

At Myriad, we're monitoring these developments and working with clients to position them for whatever changes emerge from this year's budget. The key is being prepared to act quickly when the new rules are announced.

Want to ensure your business is ready to maximise any R&D credit enhancements? Our team can review your current position and help you prepare for the changes ahead. Get in touch for a consultation about your R&D tax strategy.