Ireland’s R&D tax regime: a make-or-break moment for competitiveness

Ireland’s R&D tax regime is at a critical juncture, requiring bold reforms to enhance competitiveness and drive innovation-led growth, explains Ian Collins

Encouraging greater levels of research and development (R&D) is one of the most powerful ways Ireland can strengthen its economy, through attracting investment and building a thriving indigenous business base.

As the global tax playing field levels out, countries are increasingly turning to innovation incentives as their next strategic lever. In this environment, Ireland’s R&D Tax Credit (RDTC) has never mattered more, not just as a financial support for businesses, but as a core driver of long-term economic competitiveness.

While Budget 2025 raised the RDTC (a cash refund scheme) from 25 percent to 30 percent, a move designed to preserve its value for multinationals navigating the new 15 percent global minimum tax, the reality is that other countries are pushing much further ahead.

A global benchmark on the move

Ireland has long been recognised for having one of the world’s best R&D tax regimes. But global competition is intensifying.

Singapore’s scheme allows companies to claim up to a 400 percent deduction on the first S$400,000 of qualifying R&D spend, while Australia offers SMEs 43.5 percent and the Netherlands 40 percent. Germany has recently introduced a 35 percent SME credit.

Given this backdrop, Ireland must ensure its regime remains competitive not only to attract foreign direct investment (FDI) but also to encourage a vibrant, innovative indigenous business base. To achieve this, we recommend the following actions:

1. Increase the rate

Ireland cannot afford to be seen as playing catch-up.

Raising the RDTC rate to at least 35 percent would send a strong signal of intent and demonstrate Ireland’s commitment not just to retaining existing investment but also to winning the next wave of FDI.

This move would also stimulate greater R&D activity across indigenous industry, where Ireland has been falling behind.

R&D expenditure here is just 1.5 percent of GDP, compared to the European average of 2.03 percent and over 3 percent in Finland. Singapore is even further ahead.

Crucially, Ireland’s R&D spending as a proportion of GDP has declined over the past decade, while competitor countries have surged ahead.

2. Broaden the definition of innovation

Simply increasing the rate will not be enough. The definition of qualifying R&D activity needs to be extended to reflect today’s reality, where innovation increasingly includes artificial intelligence, quantum computing, and other advanced technologies.

Aligning the regime with international best practice would enable a wider range of innovative activities to qualify for the scheme.

3. Foster collaboration with academia

Collaboration between industry and academia is vital for scaling R&D in Ireland.

Many companies, particularly SMEs, lack the resources to undertake large-scale projects in-house and rely on universities and research institutions. At present, limits on outsourcing R&D to third-level institutions act as an impediment to this collaboration.

Removing these restrictions would not only strengthen Ireland’s innovation ecosystem but also channel vital funding into universities, support STEM education, and ensure that Ireland can produce the graduates needed to attract and sustain high-value R&D activity.

4. Modernise outsourcing rules

The increasing complexity of R&D projects means companies often rely on third-party subcontractors. Yet, current rules place severe limits on the use of third parties, which is no longer reflective of how R&D is conducted.

We propose adjusting the cap on third-party outsourcing so that it matches a company’s in-house qualifying R&D spend.

This balance would ensure Ireland retains meaningful R&D activity within organisations while allowing the flexibility required for advanced projects such as clinical trials and digital transformation projects.

Related-party restrictions should also be updated.

At present, multinational companies cannot draw upon their overseas R&D capability within their foreign subsidiary base as part of any Irish R&D claim.

Allowing some related-party activity, provided the intellectual property (IP) is owned in Ireland, would strengthen Ireland’s appeal as a global R&D hub while anchoring value creation locally.

5. Improve cashflow support for SMEs

For SMEs, cashflow is often the difference between scaling and stalling.

The RDTC is unique in that businesses must claim money back from Revenue, with repayments spread over three years. For early-stage, pre-profit companies, this timeline is too long.

6. Simplify administration

Ireland currently operates two parallel systems for R&D support: grant aid through IDA Ireland, Enterprise Ireland, and Local Enterprise Offices, and the RDTC administered by Revenue. This duplication creates unnecessary complexity.

A streamlined approach, where eligibility under one state R&D support scheme automatically confirms eligibility under the RDTC, would reduce administrative burdens and free up capacity within these businesses to focus on innovation rather than paperwork.

7. Target emerging sectors

Finally, enhancements should be considered to prioritise R&D for high-potential sectors such as green technology and clinical research. These areas represent both urgent global challenges and major opportunities for Ireland to lead.

Time to shape the future with confidence

The world is not standing still, and neither can Ireland. To remain competitive, we need a bold recalibration of our R&D tax regime. That means:

• Raising the RDTC rate to at least 35 percent;
• Broadening the definition of qualifying innovation;
• Removing restrictions on collaboration with universities;
• Modernising subcontracting rules;
• Reducing refund timelines for SMEs;
• Simplifying the administration of R&D incentives; and
• Supporting emerging sectors like AI, greentech, and clinical research.

Taken together, these reforms would position the RDTC at the global leading edge and secure Ireland’s position as a premier destination for research, talent, and investment.

Ireland has a window of opportunity. With decisive action, the RDTC can be the catalyst that drives the next era of innovation-led growth.

Ian Collins is Tax Partner at EY