How to take advantage of the Knowledge Development Box (KDB) tax incentive

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

1. Obtain a patent;
   
2. Obtain a copyright for any software developed (a straightforward process); or
   
3. 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;

1. Is the business profitable?
2. Have you made a successful R&D tax credit claim?
3. Can you identify a qualifying asset such as a new product or solution that you have developed?
4. 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.

To find out more about how to access the KBD program, contact Brian Cookson at bcookson@rdpassociates.com or Richard Thorpe-Manley at rthorpe-manley@rdpassociates.com.

Prepared and edited by @EdinaZejnilovic, Journalism Student at DCU

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