6.25% Corporation Tax rate for qualifying companies in Ireland due to the new Knowledge Development Box (KDB)
The Irish Budget 2016 has introduced a new Knowledge Development Box (KDB) regime on the 1st of January. Often referred to as the “Patent Box”, it allows companies who carry out research and development (R&D) in the state to avail of a tax rate of 6.25%.
The KDB basically gives R&D companies a 50% deduction on qualifying profits, resulting in an effective tax rate of 6.25%. These profits include profits generated from patented inventions, including 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 legal requirement that every company documents how they track and trace this calculation.
Eligible expenditure also includes the cost of R&D that is outsourced to unrelated parties, but does not include group outsourcing costs and also 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 Irish registered R&D companies an excellent opportunity to avail of significantly lower corporation tax on qualifying profits. The first claims are expected to be made in early 2017 in respect of the 2016 tax year.
For more information on the Knowledge Development Box or the Register a company in Ireland, please do not hesitate to contact us on +353 (0)1 687 4519 or fill out our contact form and an expert will be in touch as soon as possible.