What is the Knowledge Development Box in Ireland?

The Budget 2016 has introduced the new Irish Knowledge Development Box (KDB) regime. Also referred to as the Patent Box, it enables companies carrying out research and development (R&D) activities in Ireland a favourable tax rate of 6.25%.

The KDB commenced on the 1st January 2016 and essentially provides a 50% deduction from qualifying profits, resulting in an effective tax rate of 6.25%. These qualifying profits includes profits from patented inventions, together with those pending, copyrighted software, plant breeders’ rights and supplementary protection certificates for medicinal products and for plant protection products.

Assigning an income stream from the sale of a product to the Intellectual Property element is a key element to calculating the KDB benefit. It is a requirement of the law that companies document how they track and trace this calculation.

Qualifying expenditure includes the cost of R&D that is outsourced to unrelated parties, but excludes group outsourcing costs, including those related to cost-sharing agreements and costs incurred on the acquisition of Intellectual Property.

For expenditure to qualify it must be incurred wholly and exclusively in the carrying out of R&D activities. There is some offset for the non-qualifying expenditure as the law allows an uplift of the qualifying expenditure by a specified amount. That amount is determined as the lower 30% of qualifying expenditure or the total amount paid to related companies for outsourced R&D activities and to acquire IP.

The KDB offers an opportunity for Irish registered companies to avail of substantially lower corporation tax on qualifying profits. The first claims will be made in 2017 in respect of 2016.

For more information on the KDB or the register a company in Ireland, please don’t hesitate to contact us on +353 (0)1 646 1625 or email at formations@companybureau.ie.

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