Claiming Subcontractor Costs for the Digital Games Tax Credit

Ireland's Digital Games Tax Credit lets qualifying studios claim back 32% of eligible development costs, up to €25 million per game. But most games aren't built entirely in-house, and the rules around what you can claim for outsourced work are stricter than many developers expect.

If part of your game is being built by an external studio, freelancer, or specialist contractor, you need to understand how Revenue treats those payments before you file your claim.

What counts as a subcontractor payment?

Not every payment to an outside party qualifies. For a payment to count as a subcontractor payment under the scheme, two things need to be true:

• The work would have counted as qualifying expenditure if your own team had carried it out
• The subcontracting covers only part of the game's development, not the management or general administration of the project

Revenue's guidance puts it plainly:

“Subcontracting is limited to part only of the development of the digital game and does not include the management and general administration of the development of the digital game…”

In practice, this means you can outsource things like art production, sound design, level building, or a chunk of the programming work. What you can't do is hand over the running of the project itself. Your company needs to stay in control of the game's direction and budget throughout.

How much can you claim for subcontracted work?

Unlike Ireland's R&D tax credit, where subcontractor limits are tied to a percentage of your own spend, the Digital Games Tax Credit uses a flat cap: subcontractor payments only count as qualifying expenditure up to €2,000,000 per game. Anything above that simply falls outside the claim, no matter how essential it is.

This cap applies to the game as a whole, not per subcontractor. If you're working with several external partners on one project, you need to add up everything you're paying them to see where you stand against the limit.

Company A hires three EEA-based studios to handle its game's engine work, level design, and QA testing, paying them a combined €2,400,000. Because the total exceeds the €2,000,000 limit, only €2,000,000 of that spend can be treated as qualifying expenditure. The remaining €400,000 is excluded from the claim entirely.

Does it matter where your subcontractor is based?

Yes – the credit isn't calculated on your qualifying expenditure alone. It's based on the lowest of:

• Your eligible expenditure
• 80% of your qualifying expenditure
• €25,000,000

Eligible expenditure is the portion of your qualifying spend that's incurred in Ireland or the EEA, and subcontractor payments only count towards it if the subcontractor is based in Ireland or the EEA.

This reflects the policy behind the credit: it's designed to build up game development activity within Ireland and the EEA, not to fund work carried out anywhere else in the world.

Company B pays a US-based motion capture studio €800,000 as part of its game's development. That figure sits comfortably under the €2,000,000 cap, so it counts in full as qualifying expenditure. But because the studio isn't based in Ireland or the EEA, none of that €800,000 counts as eligible expenditure, which is the figure your 32% rate actually gets applied to.

If a meaningful share of your budget goes to subcontractors outside Ireland or the EEA, your eligible expenditure could end up well below your qualifying expenditure, and that gap directly reduces the value of your credit. It's worth mapping out where your subcontractors are based before you rely on a figure for planning purposes.

What documentation do you need to keep?

Revenue expects clear evidence that subcontracted costs meet the rules above, not just that the payments were made. For each subcontractor, you should hold onto:

• The contract or agreement setting out the scope of the outsourced work
• Invoices and proof of payment
• A description of the work carried out, showing it relates to development rather than management or administration
• Confirmation of where the subcontractor is resident or operates from
• A vouched breakdown showing how the payment splits between qualifying and eligible expenditure

You'll also need to disclose any transactions with connected persons as part of your claim documentation, even where those transactions are entirely legitimate.

Key takeaways

• Subcontractor payments only qualify if the work would have counted as qualifying expenditure in-house, and if the subcontractor isn't handling management or general administration of the project.
• The cap on subcontractor costs is a flat €2,000,000 per game, covering all subcontractors combined, not each one individually.
• Only subcontractor payments to Ireland or EEA-based partners count towards eligible expenditure, which is what your 32% credit rate is actually applied to.
• Keep contracts, invoices, work descriptions, and a vouched breakdown of costs for every subcontractor you use.

Subcontracting part of your game's development is common, and it doesn't have to cost you credit value if you plan for it properly. If you'd like help working out how your subcontractor costs affect your Digital Games Tax Credit claim, contact Myriad to discuss your project.