John Burke, Director, R&D Tax, Forvis Mazars: Ireland’s Research & Development (R&D) Tax Credit has long been a cornerstone of the country’s innovation strategy, supporting both indigenous enterprises and multinationals in their pursuit of technological advancement. The recent Budget 2026 announcement, which confirmed an increase in the R&D tax credit rate from 30% to 35%, marks another significant step in the Government’s ongoing commitment to fostering innovation-led growth.

The increase to 35% sends a clear signal: Ireland is serious about remaining competitive in the global race for innovation. This follows a previous increase from 25% to 30%, reinforcing a trend of incremental enhancements aimed at future-proofing the regime.
From an international perspective, Ireland’s R&D tax credit now ranks among the most generous globally. Countries such as Germany and the Netherlands offer similar rates, while others like Singapore and Australia provide alternative models with highly effective benefits. However, Ireland’s approach – offering a cash refund mechanism and a broad scope of qualifying expenditure – remains particularly attractive to both SMEs and large enterprises.

Looking ahead, Ireland must continue to evolve its R&D tax regime to remain competitive. Simplifying the claims process, expanding qualifying definitions, and introducing targeted incentives for green and digital innovation will be key. The increased rate is a welcome development, but it should be viewed as part of a broader strategy to position Ireland as a global leader in research, talent, and investment.

Deirdre Barnicle, Partner, McCann FitzGerald: Ireland’s R&D Tax Credit is key to incentivising companies to carry out R&D activities in Ireland. We welcome the increased R&D Tax Credit rate announced in the Budget. This increase (30% to 35%) is the first effective increase for those multinationals within the scope of Pillar 2 rules since 2008.

Many multinationals have not benefitted from historic increases as such increases will be offset by the Pillar 2 rules. Increasing the R&D Tax Credit rate to 35% provides a tangible benefit to all claimants and positions Ireland as a competitive choice for R&D investment by multinational companies.

The Budget also increased the first-year payment threshold from €75,000 to €87,500. This increase provides only a marginal benefit to first-year R&D companies, especially compared to previous rules which provided full offset against corporation tax. We suggest this threshold be increased further to encourage new companies to invest in R&D and ensure companies get vital cashflow at the earliest opportunity.

The Minister also announced that a R&D Compass will be published in the coming weeks which will consider targeted changes to the R&D Tax Credit, including areas such as outsourcing and qualifying expenditure definitions. We recommend a reform of unnecessarily narrow restrictions in these areas to better align Irish provisions with the commercial realities of modern R&D. We would welcome broadening the scope of qualifying expenditure to include a wider range of overheads like rent, insurance, IT support, equipment maintenance, etc, which would more accurately recognise the wider costs incurred in carrying on R&D activity. In addition, we would propose increasing the 15% cap on outsourced R&D expenditure. As R&D projects grow in scale and complexity, companies increasingly rely on specialised expertise and technology that may not be feasible to support in-house. Removing these restrictions would increase accessibility and scalability and bring Ireland into line with competitor jurisdictions operating more flexible regimes.

Colin Farrell, Tax Partner, Financial Services, PwC Ireland: PwC welcomes the Budget’s enhancements to Ireland’s research and development (R&D) incentives and Digital Games tax credit. The increase in the R&D tax credit rate to 35% is very helpful in boosting our competitiveness. Also, the extension of the Digital Games Tax Credit by six years, and consideration of broader innovation supports is welcomed. We would like to see more consideration given to extending the Digital Games tax credit to cover partial game development.

Further work is required on the scope, design and timing of broader R&D and innovation supports that will be targeted in the Department of Finance’s forthcoming Compass. This will be important in building on the positive Budget announcements and in ensuring Ireland remains attractive for the next wave of R&D and broader innovation investments.

Ireland’s R&D tax credit remains pivotal to attracting high-value investment and skilled jobs. Our recent client survey shows that without the credit, most companies would conduct less than half of their current Irish R&D. While recent reforms preserved value under Pillar Two by moving to a fully payable credit, these changes have largely maintained rather than enhanced competitiveness, with the three-year payout schedule limiting cash-flow benefits.

However, Ireland’s competitive position is eroding as peers offer richer, more flexible regimes.
For example, Portugal provides a higher base rate (32.5%) plus 50% incremental credit, and Spain offers a 42% incremental rate, alongside broader outsourcing flexibilities (e.g., France’s higher subcontracting caps).

In contrast, Ireland is constrained by a narrow definition of qualifying costs and activities, a 15% cap on subcontracted R&D, and capital rules on buildings that limit access where R&D use of 35% is not achieved or industrial building allowances do not apply.

Notably, many modern innovation efforts, especially early-phase work such as concept development and high-level feasibility studies, are excluded because they are seen as commercially driven. Broader eligibility, as seen in competitor countries, would better support investment and sustain Ireland’s innovation competitiveness. The Knowledge Development Box’s limited effectiveness for companies in-scope for Pillar Two further weakens Ireland’s IP offering. A refundable innovation credit would have been a welcome addition to the suite of RD&I tax tools on offer by Ireland.

This article appeared in the October 2025 edition of the Irish Tax Monitor.