Government Tax Regimes To Attract R&D Activity

Tax Environments for Startups

The European startup initiative survey found that 25.9% of high tech startup founders set up their businesses abroad. This clearly shows that there are numerous factors that affect the location of a start-up. Among these is the tax environment and specifically the tax policies that various governments put in place.

Attracting Startups Through Tax Reliefs

In Ireland, three major types of policy instruments are used by the government to attract startups. These instruments are tax relief for founders and investors, incentives for employee talent and relief on technology trade. This type of government spending reflects their commitment to attracting R&D activity to create new jobs and grow the economy.

R&D Tax Incentives

One of the indicators of the government’s support for technical innovation and research is its investment in the tax incentives it offers for R&D. Ireland’s 12.5% corporate tax rate and 25% R&D tax credit are attractive for technology companies. Abroad, the UK government announced in November 2016 that an extra £2 billion per year investment by 2020 would be geared towards R&D in order to secure the region’s long-term commitment to research and innovation. Additionally, in November 2017, the government announced a further £2.3 billion investment in R&D in 2021/2022 from the National Productivity Investment Fund. Moreover, the intention to raise total R&D investment to 2.4 percent of GDP by 2027 was also stated.  All of these actions are aimed at making the country one of the best when it comes to innovation and development.

“Intellectual Property Box”

The UK, Ireland and the Netherlands also offer variations on what is called an IP “box.” Under the UK’s patent box regime, a corporation tax rate of 10% is available in respect of profits derived from the exploitation of (broadly) EU granted patents and some plant-based and medicinal innovations. Ireland’s knowledge box, offering a 6.25% tax rate, has led Irish tax resident companies to employ software engineers and other specialists throughout the EU to conduct R&D. If your company is conducting R&D activities in Ireland, you may be able to claim the R&D tax credit. To check your eligibility, take our online eligibility quiz.

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