Micro and small firms employing up to 250 workers will be allowed to write off up to 30% of their R&D costs and receive the finance much more quickly as part of Budget 2020.
Crucially, the increase from the current R&D rate of 25% includes a commitment to allow small firms to gain the full benefit while they are still in product development stage and yet to record a profit. Currently, small firms must wait to use any R&D credit to offset against payment of corporation tax – a profit point they might never reach without sufficient finance up front.
This change means start-ups and early stage companies will gain quicker access to the R&D tax credit rebate and thus improve their cash flow.
The move still leaves Irish firms at a disadvantage to competitors in the UK, which provides a 33% R&D tax credits for loss-making SMEs.
Finance Minister, Paschal Donohoe, said he would raise the current 5% tax credit for outsourced R&D work to 15% so long as the R&D provider is based in a third-level institution.
“This may be of particular benefit to smaller companies who rely on outsourcing to undertake R&D, and it will also support R&D activities in the third level sector,” Minister Donohoe said.
Changes to Revenue’s Employment and Investment Incentive (EII) also appear designed to spur increased venture capital investment in smaller firms – and to commit those investors to a longer-term stake.
Currently, investors under the scheme receive up to a 30% credit on their investment, but most of the credit is delayed for four years. Minister Donohoe said the rules would change so that investors receive full income tax relief from the credit in the first year. In addition, the maximum cap on the benefit will be doubled from the current €250,000 limit to €500,000 “for those investors who are prepared to invest in EII for ten years or more”, says the Finance Minister.