Surprisingly strong local uptake of R&D tax scheme
Ireland's Knowledge Development Box is proving attractive to home-grown Irish businesses, the Department of Finance has revealed.
The Department has also revealed that plans to slash the rate of Capital Gains Tax (CGT) for new startups to 10pc from next year, bringing the environment more in line with the UK, would cost €65m in a full year.
The details were unveiled at a briefing on the publication of papers from the Tax Strategy Group, a high level, interdepartmental group chaired by Finance which prepares options and costings for the Budget.
For the first time, the Department released its costing of various options for the Budget in October, including costings for phasing out the Universal Social Charge, for cutting income tax and capital gains tax, and introducing a sugar tax.
The Knowledge Development Box came into effect at the start of the year, and provides for a corporate tax rate of 6.25pc - half the headline rate of 12.5pc - for companies that derive their profits from patents.
The Department said that anecdotally, Irish indigenous firms in particular have expressed interest in the scheme.
"What we're finding in terms of take-up, its that it seems to be something that is proving attractive to small and medium-sized businesses," the Department said. "What we're finding, which is interesting, is that a lot of Irish indigenous industry is seeing this as a way of getting into the R&D space."
The Department said all sectors are represented in the take-up, although there are as yet no figures for the specific number of firms availing of the scheme.
Small and medium-sized businesses that don't have the resources to patent intellectual property may still be able to benefit from the Knowledge Development Box (KDP).
A bill is before the Dáil which, if brought into law, would allow SMEs with patentable assets, but without the resources to get them patented, to tap into the tax break scheme.
The scheme was first announced in Budget 2015, and given effect in Budget 2016.
The Department has said that this will be available to companies with annual income from intellectual property that is less than €7.5m, and annual global turnover of €50m. Finance Minister Michael Noonan announced the KDB last year in the context of the phasing out, up to 2020, of the so-called Double Irish tax avoidance loophole used by multinationals.
Mr Noonan said it is the first so-called patent box that will comply with new international rules ensuring that intellectual property is generated in the jurisdiction where the tax rate will be applied.
The Strategy Group papers also show that cutting the rate of capital gains tax to 10pc for new startups, to be held for five years and subject to a €10m cap on gains, would cost €65m in a full year.
In Budget 2016, a reduced capital gains tax rate of 20pc was introduced on the sale of all or part of a business with an overall limit of €1m in chargeable gains.
The Department of Finance is also looking at the possibility of introducing a tax-advantaged share options scheme for small and medium-sized businesses.
In the papers, the Department states that possible changes could include allowing existing Revenue-approved schemes to have an element targeted at key employees.
One change would mean taxes wouldn't have to be paid on share awards until the stock is actually sold.