Claiming Your R&D Tax Credits, Why Not Take Advantage of the KDB?
by Brian Cookson and Richard Thorpe-Manley
What is the KDB?
The Knowledge Development Box (KDB) is a new company tax incentive that offers a reduced rate of corporate tax on certain profits arising from a company’s intellectual property (IP).
Essentially, any profits derived from copyrighted software, patents or a registered invention (IP profits) are taxed at 6.25% as opposed to 12.5%. In other words, the tax rate is cut in half. For example, on €100,000 of IP profits the relief results in a savings of €6,250. It is important to note that this is not a one-time offer; you can apply for this incentive every year.
Essentially, if you are already claiming R&D tax credits, you are eligible for the KDB program. By generating IP profits, there is a natural requirement for and expectation from the business to have undertaken the associated development work.
With respect to the requirements for the IP designation, you will need to either
- Obtain a patent;
- Obtain a copyright for any software developed (a straightforward process); or
- if you are a ‘small company having less than €7.5M in profits and a member of a group with a group turnover of less than €50,000,000 (and meet EC guidelines) you will need to obtain a certificate by the Controller of Patents that your Intellectual Property is novel, non-obvious, and useful.
This is a much easier process than obtaining a patent.
When can I claim under the KDB?
The KDB can be claimed for accounting periods that commence on or after 1 January 2016 and before 1 January 2021. The KDB calculation forms part of the Corporation Tax return. Claims must be made within 2 years of the end of the accounting period to which the claim relates.
Identifying the Qualifying Assets
As noted above, you are required to identify a Qualifying Asset. A Qualifying Asset is the fruits of your R&D efforts. An example of a qualifying asset would be a new software platform that you develop, the expenditures for which qualify for the R&D tax credit program. Similar to the requirements for the R&D tax credit claim, you would have to keep documentation on hand to support the development of the qualifying asset. However, if you follow a structured plan and process such as the Innovation Connection Program (ICP) from RDP, you can accomplish both of these tasks at once.
What to do now?
Ask yourself the following;
- Is the business profitable?
- Have you made a successful R&D tax credit claim?
- Can you identify a qualifying asset such as a new product or solution that you have developed?
- Can you get your software copyrighted; or apply for a patent, or get a designation for a registered invention?
If your answer is ‘yes’ to all of the above questions, then you are on the right track. Your first claim will be the most time-consuming, but after that with a process in place the KDB applications each year become much easier to process, which result in increasing your ROI exponentially.
Prepared and edited by @EdinaZejnilovic, Journalism Student at DCU