What is the Knowledge Development Box in Ireland?

By Andrew Lambe (Updated 15th October 2020)

The Irish Knowledge Development Box (KDB) regime was introduced in the Budget 2016. Recently Budget 2021 has announced that the KDB has been extended for a further two years until 31st December 2022. The Knowledge Development Box, also referred to as the Patent Box, enables companies carrying out research and development (R&D) activities in Ireland to benefit from 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 include 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 Irish Knowledge Development Box or to register a company in Ireland, please complete our Contact Form and a member of our Company Secretarial department will be delighted to assist.

Disclaimer This article is for guidance purposes only. It does not constitute legal or professional advice. No liability is accepted by Company Bureau for any action taken or not taken in reliance on the information set out in this article. Professional or legal advice should be obtained before taking or refraining from any action as a result of this article. Any and all information is subject to change.