Knowledge Development Box

The Knowledge Development Box is a tax incentive to encourage innovation in Ireland. Companies who qualify can avail of an effective 6.25 percent corporation tax rate (instead 12.5 percent) on profits arising from certain intellectual property assets.

Qualifying assets include patented inventions, copyrighted computer programmes and certain other specific intellectual property assets that are the result of qualifying research and development activity carried out in Ireland. 

IP assets that share the characteristics of patents in that they are ‘novel, non-obvious and useful’ may also be considered ‘qualifying assets’ provided that they are the result of qualifying research and development activity carried out in Ireland, however, only small companies can avail of the Knowledge Development Box for these assets. 

The Knowledge Development Box was introduced in the Finance Bill 2015. It applies to accounting periods commencing on or after 1 January 2016 and before 31 December 2020. 

Consequently, the first claims will be made in 2017.

Calculating what you can claim 

If you qualify for the Knowledge Development Box, you will need to calculate the amount of profit eligible for relief. To do this, the following formula is used:

Qualifying Expenditure + Uplift Expenditure X Profits of the specified trade 
Overall Expenditure

Revenue have published guidelines which include detailed definitions for each of these terms together with examples showing how the formula works. These Knowledge Development Box guidelines are available for download from the Revenue website.

Certification of Inventions

Recently, the Oireachtas passed legislation introducing a new scheme aimed at SMEs involved in research and development activities in Ireland to allow them to avail of the reduced corporate tax rate under the Knowledge Development Box. 

Announcing the commencement of The Knowledge Development Box (Certification of Inventions) Act 2017 on 26 May 2017, the Department of Jobs, Enterprise and Innovation stated:

“Under the scheme, SMEs can apply to the Controller of Patents, Designs and Trade Marks for a certificate where they believe that their IP generated as a result of R&D is novel, non-obvious and useful. If granted, the certificate will allow the SME to apply the lower rate of corporation tax of 6.25% to profits arising from the intellectual property assets.”

Seek professional advice

The Knowledge Development Box is one of a number of incentives aimed at encouraging innovation in Ireland. Others include Enterprise Ireland innovation vouchers and the R&D tax credit regime. 

While the 6.25 percent tax rate is attractive, there are extensive documentation requirements to claim relief under the Knowledge Development Box. Consequently, it is advisable to seek professional advice from an accountant or tax adviser as early as possible if you intend to apply. Contact Brady & Associates based in Dublin Ireland for more information and to find out how we can help.