Ireland is positioning itself among the world’s leading jurisdictions with an increase to 35% in the R&D tax credit. The change comes from the Finance Bill 2025, which implements the measure announced in Budget 2026. This represents a structural liquidity improvement designed for companies in the early stages of development, as well as an administrative simplification that reduces the cost of managing claims.

This increase from 30% to 35% is the second within a two-year period, following the rise from 25% to 30% under the Finance (No. 2) Act 2023. The change applies to accounting periods beginning on or after January 1, 2026.

How does it work?

The tax credit is fully refundable. It is paid in fixed installments over three accounting periods (commonly described as approximately 50%-30%-20%, although the exact allocation should be confirmed against Revenue’s technical guidance before applying it to a specific case).

The company may choose to have each installment paid in cash by Revenue. Alternatively, it may treat part or all of each installment as an overpayment of tax and use it to offset other outstanding tax liabilities, including corporate income tax, VAT, and payroll withholding taxes.

Cash flow and financial management impact

This is the most relevant development from a financial management perspective:

• The threshold for the first installment of the credit increases from €75,000 to €87,500.
• Companies can now claim the first €87,500 of an R&D tax credit claim as payable in the first year, even if the monetized installment calculated under the fixed-installment rules would otherwise be lower than this amount.

Illustrative example: A company with €250,000 in qualifying R&D expenditure generates a €87,500 credit (35%). Under the new rules, the company can receive the full €87,500 in the first accounting period—either in cash or by offsetting taxes—instead of having that amount spread and deferred over three years.

In practice, this means that a start-up or loss-making company—the typical profile of an R&D-intensive business that has not yet generated profits—can receive a real and accelerated cash injection in its first accounting period. This reduces the time the company has to wait for the bulk of the credit to materialize. For a profitable company, the credit reduces its corporate income tax liability; for a loss-making company, it becomes a cash payment made in installments. In both cases, more cash returns to the business sooner.

Administrative simplification: less management friction

There is also a second change with a direct impact on internal management and compliance: when an employee spends at least 95% of their working time on R&D activities, 100% of their remuneration can be treated as a qualifying cost.

This eliminates the need for detailed time tracking for employees whose roles are almost entirely dedicated to R&D, reducing compliance costs without compromising the integrity of the system.

Advantages with a real-world impact

1. Cash flow planning: the increase in the immediate payment threshold turns the R&D tax credit into a genuine working-capital financing tool, rather than simply a theoretical long-term tax saving.
2. Location decisions: for multinational groups deciding where to locate their R&D activities, the 40% increase in the credit rate over two years (from 25% to 35%) strengthens Ireland’s position as a European innovation hub compared with competing jurisdictions.

Technology is a major part of Ireland’s economy, with many companies in the sector operating extensively across the country. As a result, entering the Irish market can be beneficial for certain businesses.

Autor/a:

Gisleno Castro

Account Manager – ES

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