The R&D credit rewards the spending; the Knowledge Development Box (KDB) rewards the result. It is a separate relief, in Chapter 5 of Part 29 of the Taxes Consolidation Act 1997, under which profits from qualifying intellectual property developed through R&D carried on in Ireland are taxed at a reduced effective rate. The two reliefs share a definition of R&D but are claimed separately, and the KDB's modified nexus formula ties the relief to the share of the development spend incurred by the company itself. This page explains how it works and how it sits beside the credit.
What it is
| Element | Rule |
|---|---|
| Relief | A deduction that reduces the corporation tax on qualifying profits to an effective rate of 10% for accounting periods commencing on or after 1 October 2023, increased from 6.25% by Finance Act 2023 |
| Qualifying assets | Patents, copyrighted computer programs, and for smaller companies certified IP that is novel, non-obvious and useful |
| Qualifying profits | Income from the asset (royalties, embedded income in product sales, damages) less related expenditure, multiplied by the modified nexus fraction |
| Modified nexus fraction | Qualifying expenditure on the asset, plus an uplift of up to 30%, divided by overall expenditure including acquisition costs and related party outsourcing |
| Qualifying expenditure | R&D expenditure incurred by the company itself, or outsourced to unconnected parties, in Ireland or elsewhere in the EEA |
| Election | Made in the corporation tax return within 24 months of the end of the accounting period |
| Tracking | Income and expenditure tracked by asset, or by product or family of products, with documentation |
| Statute | Sections 769G to 769R |
Who it applies to
Companies within the charge to Irish corporation tax that own qualifying assets developed through R&D they carried on. In practice the KDB suits companies that have moved from development to commercialisation: software companies with copyrighted products, life sciences companies with patents, and engineering companies licensing technology. The modified nexus rule, adopted from the OECD's work on preferential regimes, means that a company whose development was largely outsourced to group companies or who bought in the IP gets little relief, because the fraction falls as the share of own spending falls.
The R&D credit and the KDB interact in a simple way: the R&D expenditure that earned the credit is, broadly, the qualifying expenditure that drives the nexus fraction, so a company with a clean credit claim already has most of the records the KDB needs. The credit does not reduce KDB relief and the KDB does not reduce the credit.
How it works
- Identify the qualifying asset and the accounting period in which it first earns income.
- Track income to the asset. Royalties and licence fees directly; for products that embed the IP, the portion of sales attributable to the asset on a just and reasonable basis.
- Track expenditure. Qualifying expenditure (own and unconnected outsourcing), acquisition costs and group outsourcing, from the start of development, with a transitional rule for assets developed before the regime began.
- Compute the nexus fraction with the uplift, capped at 1.
- Compute qualifying profits and the deduction that brings the effective rate to 10%.
- Claim in the Form CT1 within 24 months of the period end, and keep the tracking documentation.
Where income cannot be tracked by asset, the Act allows tracking by product or family of products. The documentation burden is real, and Revenue expects the methodology to be set before the first claim and applied consistently.
Worked example
Illustrative example. Garavogue Software Limited, a hypothetical company, developed a copyrighted analytics product. Development cost €3,000,000: €2,400,000 incurred by its own Irish team, €300,000 paid to an unconnected Dutch contractor and €300,000 paid to a group company abroad. In its 2026 accounting period the product earns qualifying profits of €2,000,000 before the KDB.
| Step | Calculation | Result |
|---|---|---|
| Qualifying expenditure | Own €2,400,000 plus unconnected €300,000 | €2,700,000 |
| Uplift | Lower of 30% of €2,700,000 (€810,000) and group outsourcing (€300,000) | €300,000 |
| Overall expenditure | All development spend | €3,000,000 |
| Nexus fraction | (€2,700,000 plus €300,000) divided by €3,000,000 | 1.0 |
| Profits qualifying for KDB | €2,000,000 multiplied by 1.0 | €2,000,000 |
| Tax at the 10% effective rate | €200,000, against €250,000 at 12.5% |
Garavogue's R&D credit claims during development, at 25% and 30% of the same expenditure, were separate and were paid in instalments. Had the group company done most of the development, the fraction would have fallen and the saving with it.
Common questions
Can we claim the KDB and the R&D credit on the same project? Yes. The credit is on the spending, the KDB on the profits from the result.
Does software qualify? Copyrighted computer programs are qualifying assets. Trademarks and marketing intangibles are not.
We bought the IP. Can we claim? Acquisition costs are in the denominator but not the numerator, so relief is limited to the share of development you carried out yourself after acquisition.
What is the deadline? 24 months from the end of the accounting period, which is longer than the 12 months for the credit.
Related pages
Official sources
Educational content only, not tax advice. See the disclaimer.