Innovation doesn’t just happen by itself. The R&D tax credit has been a key tool when it comes to positioning Ireland as a low-risk location for research and development activity and boosting our overall innovation ecosystem. While this generous support has long been regarded as best in class internationally, other jurisdictions have been upping their game to compete. Indeed, about 34 of 38 OECD countries now provide favourable tax treatments for R&D, many approaching Ireland’s level of support. The benefits are well documented; for example, in 2022, the OECD reported that one unit of R&D tax support resulted in 1.4 units of additional R&D spend. The Government responded by increasing the level of the credit from 30 per cent to 35 per cent in the most recent budget. Some say more could be done to ride this wave of innovation. Matt Moran was a co-founder and director of BioPharmaChem Ireland, the key industry body representing the Irish biopharma sector, and has more than 30 years of experience working with Ibec and life sciences companies. He says changes to the research and development tax credit in last year’s budget boosted the amount being invested in innovation. “As competition for inward investment in life sciences becomes increasingly intense, incentives such as the R&D tax credit have an important role to play,” he notes. “It was encouraging to see the increase from 30 to 35 per cent but it will be necessary to keep this under constant review, and the incentives could be further enhanced by examining their scope of what qualifies for incentives.” Moran believes areas such as digitalisation of manufacturing, deployment of artificial intelligence in research and development and manufacturing should also be looked at. And while the credit helps to attract foreign direct investment, Moran also points to its benefits in helping to grow our indigenous life-sciences industry. “As the Government seeks to develop local indigenous industry and to encourage commercialisation of research through initiatives such as the ARC Hub for Therapeutics, the R&D tax credit will help companies at an early stage to achieve commercial success.” The R&D tax credit is a strategic tool which enables high-value activity and jobs to be anchored in Ireland, says Emma Fidgeon-Kavanagh, principal in the R&D incentives practice at KPMG. Emma Fidgeon-Kavanagh, KPMG The recent increase in the credit from 30 to 35 per cent was targeted both at helping Ireland compete for globally mobile R&D investment and to give more meaningful support to smaller claimants and smaller projects, thereby encouraging wider use of the credit and supporting the growth of Ireland’s knowledge economy, she says. The 2026 Ireland Innovation Index, produced by IRDG and KPMG, revealed a significant boost in R&D activity arising from the R&D tax credit. The nationwide survey gathered responses from almost 600 companies engaged in innovation, finding that 69 per cent of them had increased R&D spend over the past three years, while 77 per cent expected to increase investment over the next three years. “When asked how the recent five-point uplift is being used to support their R&D activity, we found 58 per cent of respondents are directing it to existing R&D projects, 57 per cent to new R&D activity, and 39 per cent to hiring or retaining R&D staff,” adds Fidgeon-Kavanagh. The research also shows the credit’s importance for jobs and activity, she notes, with more than half (54 per cent) of multinational corporations saying that just 10 per cent or even less of their R&D would occur in Ireland without it. Damien Flanagan: 'An issue of growing strategic importance' But to sustain leadership in this critically important area, Ireland should broaden supports beyond the R&D tax credit, says Damien Flanagan, R&D incentives practice lead, KPMG. Flanagan points out that the 2026 Ireland Innovation Index found that 71 per cent of firms believed a specific innovation tax credit would enable them to carry out more innovative work in Ireland, while 67 per cent say it would support new product and service development. “This is seen as an issue of growing strategic importance given Ireland’s consistently weak international rankings for indigenous innovation, reflected in lower-than-average trademark and design applications,” says Flanagan. This is also crucial in the aftermath of Pillar Two of the OECD’s Global Anti-Base Erosion Rules (GloBE), which aims to ensure large multinational enterprises pay a minimum level of tax on their income. Recommendations in KPMG’s pre-budget 2027 submission include positioning Ireland as an innovation hub in a post-Pillar Two environment and accelerating digitalisation across the domestic economy. “We suggest introducing a digital transformation tax incentive, enhancing and simplifying the R&D tax credit, including targeted support for green technologies and improved SME access, and reforming the Knowledge Development Box to preserve its effectiveness for in-scope groups,” Flanagan says.