Under the scheme, SMEs can apply to the Controller of Patents, Designs and Trade Marks for a certificate where they believe that their IP generated as a result of R&D is novel, non-obvious and useful. If granted, the certificate will allow the SME to apply the lower rate of corporation tax of 6.25% to profits arising from the intellectual property assets.

Evidence shows that investment in R&D increases economic productivity and fosters competitiveness and that firms with a persistent R&D strategy outperform those with an irregular or no R&D investment program.

The Minister continued: “R&D can be very expensive and time consuming and not all R&D is successful. SMEs that invest in R&D will now be able to benefit from the lower rate of corporation tax if their IP meets the criteria of being novel, non-obvious and useful. I expect that the extension of the KDB to Irish SMEs will incentivise greater levels of R&D within the indigenous sector and that with greater levels of R&D, increased job creation will follow which is a key priority of mine.”

Welcoming the scheme, Minister for Employment and Small Business, Mr Pat Breen said the scheme puts SMEs on a par with larger companies by making them for eligible for a lower rate of corporation tax on profits from their IP assets.and welcomed the additional support. He said he anticipated that it will encourage indigenous SMEs to be more creative.

Minister for Training, Skills and Innovation, John Halligan TD, said: “Promoting innovation is a key focus for me in my role as Minister for Innovation and I believe this Act offersSMEs valuable opportunities to invest in greater levels of R&D.”

The Knowledge ,Development Box (KDB) was introduced in the Finance Act 2015 as a tax incentive to encourage innovation and boost research and development. Under this initiative, a corporate tax rate of 6.25% will apply to profits on intellectual property assets that result from research and development carried out in Ireland.

The Finance Act provides that three distinct categories of intellectual property qualify for the KDB. These are patents, copyrighted software and inventions that share the characteristics of patents in that they are novel, non-obvious and useful. It is the third category of intellectual property assets that the Act is concerned with and for which a new certification scheme is created. The KDB is already operational for the first two categories, patents and copyrighted software since 1 January 2016.

The Controller of Patents, Designs and Trade Marks will administer the scheme, thereby meeting the OECD requirement that scheme must be a transparent certification process provided by a competent government agency that is independent of the tax administration.