Minister for Finance, Simon Harris, launched the Research and Development (R&D) Tax Credit and InnovationCompass report on Monday (16 February). The Compass provides a framework for how the Government plans to reform and expand the R&D tax regime in the future. The R&D tax credit remains a key component for Ireland in attracting multinational investment, while also encouraging domestic firms to prioritise innovation activities.
The Compass sets out a strategy for developing Ireland’s R&D supports across four key areas:
- Qualifying Expenditure
- Capital Expenditure
- Administration and Simplification
- Supports for Innovation.
Ireland’s R&D tax credit is a central component of the State’s industrial policy, allowing companies to offset a percentage of qualifying R&D expenditure against their corporation tax liabilities. The benefits of promoting national R&D include supporting innovation, industry productivity, employment and driving long-term economic growth. For Ireland, the R&D tax credit is an essential measure for encouraging research, development and innovation.
The tax credit formerly stood at 30 per cent and was increased to 35 per cent in Budget 2026, allowing firms to claim back €35 for every €100 spent on relevant R&D activity in Ireland. While the Department of Finance does not anticipate any further future changes will be made to the rate, the Compass report outlines several options for broadening the scope of tax in the years ahead, which could allow companies to claim more tax back. This measure addresses the challenges facing companies regarding innovation activities that do not match the existing criteria under current policies.
A particularly valuable outcome of R&D incentives such as Ireland’s tax credit is the collaboration it encourages between business and academia. For businesses, the collaboration can facilitate access to specialised expertise and for universities, the collaboration can assist funding positions for researchers as well as broaden new career opportunities. The Government’s report comes following a public consultation by the Department of Finance last year on the R&D tax credit. Both University College Dublin and the University of Galway made submissions stating the existing cap as a barrier to the uptake of joint research projects. Both institutions called on the Government to increase the cap, believing it was essential to facilitate more meaningful industry-academia collaboration. The Government’s considerations taken from last year’s public consultation regarding the tax credit reflect the interest in enhancing innovation supports from industry and stakeholders.
The Irish government’s decision to reform the R&D tax credit framework reflects a clear commitment to supporting innovation as a driver of long-term economic growth. By increasing the credit to 35 per cent and setting out a roadmap for future reform through the Compass, the Government has signalled its intention not only to remain competitive in attracting multinational investment, but also to support domestic enterprises and further collaborative research. Future legislative and budgetary measures will likely follow and are needed in order to attain the benefits of such innovation proposals. If implemented effectively, these reforms have the potential to strengthen collaboration between industry and academia and reinforce Ireland’s position as a leading focal point for industry research and development.
