13 Jan 21
Ireland - a great destination to develop and manage Intellectual Property
Ireland offers many advantages to companies looking to develop and nurture their intellectual property. Our 12.5% rate of corporation tax is often the first benefit to setting up a company proffered in Ireland’s favour. It certainly plays a crucial role in attracting multinationals to these shores but there are many more benefits to setting up in Ireland, particularly when it comes to intellectual property rights and R&D.
Intellectual Property (IP) management is a vital part of Ireland’s economy. A joint study by the European Patent Office (EPO) and the European Union Intellectual Property Office (EUIPO) published in September 2019, noted that the highest share of jobs in IP-intensive industries generated by companies from outside the EU is to be found in Ireland, at 20%. The study also noted that Ireland was one of seven member states in which more than 30% of IPR-intensive job creation originates outside the country.
Common law, common ground
Ireland is a common law jurisdiction with an independent, efficient court system. Products whose value depend upon IP rights like software, books, music, film/video etc enjoy strong and practical protection in Irish law. The provisions in the Irish Trade Marks Act 1996 and the Copyright and Related Rights Act 2000 are widely regarded as best-in-class and superior to many of our European partners.
This common law tradition ensures familiarity with North American, British and Commonwealth legal systems while meeting all relevant international (Berne Convention, TRIPS Agreement and the 1996 Geneva Copyright treaties) and EU IP directives. As one of the world’s largest exporters of computer software, Ireland’s wide range of legal protections have been trusted by the world’s biggest creators and owners of Intellectual Property.
Tax benefits for investing in IP
In the past decade, Ireland’s focus on the knowledge economy and technology has made the country a natural location to develop new, innovative products. As a result, many internationally focused groups are developing a significant presence here, choosing Ireland to onshore their intellectual property.
This has also enabled firms to develop licensing hubs from Ireland, the EU Royalties Directive and Ireland’s extensive network of double taxation treaties generally allows for royalty payments to be made and received free of withholding taxes between other EU Member States and our treaty partners .
Our corporate tax rate certainly plays a crucial role in attracting multinationals. Less is said about the other tax incentives, particularly for companies involved in acquisition, development and licensing of intellectual property (IP). The advantages they offer should not be underestimated. These include:
1. Acquisition of IP For trading purposes
Capital allowances can be claimed on any capital expenditure incurred by companies on the provision of certain “specified intangible assets”. These assets include:
The allowances typically follow the accounting write-down, but a company can elect for a fixed write-down period of 15 years (7% per annum and 2% in year 15). Going forward, they can be offset against income generated from managing, developing or exploiting the intangible assets. Allowances can also be offset from any income from selling goods or services that derive their value from these intangible assets.
Some restrictions on the relief have been introduced in recent times. Finance Act 2017 introduced a cap on the amount of relief that may be claimed in an accounting period. This cap applies to claims in respect of capital expenditure on specified intangible assets on or after 11 October 2017. The level of deduction cannot exceed 80% of the trading income of the relevant trade for the accounting period.
Additionally, Finance Act 2020 provides that capital expenditure incurred on qualifying intangible assets on or after 14 October 2020 will be fully within the scope of balancing charge rules. This means that irrespective of how long these assets are held, a balancing charge may arise on their disposal or where they cease to be used for the purposes of a trade. As this is unlikely to affect the many intangible assets that naturally depreciate, this amendment is not expected to result in significant additional tax revenue but was introduced to ensure Ireland’s intangible assets regime remains competitive, legitimate and sustainable.
2. Knowledge Development Box
A recent addition to Ireland’s tax legislation is the Knowledge Development Box (KDB). Trading profits earned from patented inventions and copyrighted software are taxed at 6.25% to the extent that those profits are related to any research and development undertaken by the company in Ireland. Firms eligible for the scheme are taxed at 6.25% on the taxable profits arising from the qualifying assets rather than 12.5%.
3. Research and Development (R&D) Tax Credits
Irish companies can also avail of a tax credit of 25% on R&D expenditure and development activities which are conducted in Ireland. This is on top of the normal 12.5% obtained for the research and development expenditure. The tax credit is used to reduce the company’s tax liability and if not used can be carried forward indefinitely. The tax credits are applicable to R&D activities conducted in Ireland or elsewhere within the European Economic Area (EEA) so long as the expenditure does not qualify for a tax deduction in another EEA country.
In effect, the company gets a 37.5% tax deduction on qualifying research & development expenditure. Such R&D activities must seek to achieve scientific or technological advancement and involve the resolution of scientific or technological uncertainty. The relief is generally sought in areas such as software development, medical sciences, pharmaceuticals, engineering, agriculture and horticulture.
4. Stamp duty
In Ireland, transfers of intellectual property are exempt from stamp duty. This enables parties to transfer intellectual property to an Irish resident company without incurring a documentary tax.
Research, development and innovation (RD&I) support
Bring creativity for your business vision headhunter concepts business intelligence mental health and psychology business decision making copyright and intellectual property rights.
The Irish government offers an extensive range of grants and financial support for R&D carried out in Ireland. Both IDA Ireland and Enterprise Ireland offer extensive assistance programmes for companies involved in research and innovation activities. These include funding, support for in-house R&D, sourcing new technologies and partnerships with other companies and third level institutions. The Technical Feasibility Study Grant is an excellent example of the benefits of such grants. It aims to assist companies looking to investigate the viability of manufacturing a new product or process or to develop a new internationally traded service.
World renowned talent
Ireland’s workforce is young, highly educated, and productive. This provides a wealth of human capital for prospective creators and owners of Intellectual Property. With the youngest population in Europe – a third of the population is under 25 – the country has also one of the most educated workforces in the world. According to the OECD, 55% of Irish 25-34-year olds have a third-level qualification which ranks number one in the EU and 11% higher than the OECD average across 37 countries that are members of the OECD.
The IMD World Competitiveness Yearbook 2020 ranks Ireland 2nd for both labour productivity and efficiency and adaptability and flexibility of workforce. As an English-speaking country, it’s a good fit culturally for companies from the US and the UK setting up here. The country also boasts a diverse workforce with more than 644,000 non-Irish nationals living in Ireland. Proportionally, Ireland has the fourth highest international workforce in Europe, with 16.5% of the workforce being international.
Political stability and its special US relationship
As a committed member of the Eurozone and the single market, Ireland has established strong trading links both in Europe and with the rest of the world. As the fastest growing economy in the Eurozone, its reputation as a destination of choice for Foreign Direct Investment (FDI) is unrivalled. Its unique relationship with the USA has given Ireland a significant edge when it comes to attracting foreign direct investment and research and development in recent decades.
If you’re looking for a well-established, pro-business environment to exploit intellectual property, then Ireland makes a compelling argument as a location of choice.