Ireland’s innovation landscape continues to be robust with a sustained commitment to Research, Development and Innovation (RDI). However, there are major pressures at play in the economics of world trade which must be taken into account in driving forward with further incentives for continuing progress, according to the 2025 Innovation Index report - the comprehensive annual evaluation of RDI activity undertaken by the Industry Research and Development Group (IRDG) and KPMG.
The research was conducted by IRDG and KPMG in March and April 2025, gathering insights from 556 companies actively engaged in RDI across multiple sectors, at a very important time in terms of global trade and amid factors potentially impacting Ireland’s current and future economic competitiveness.
Participating companies range from homegrown high-potential start-ups to global multinationals with over 1,000 employees, providing an overview of the current state and future trajectory of innovation in Ireland. Sectors ranged from Agrifood, Financial Services and ICT to Engineering, Manufacturing and Healthcare.
Among the respondents, 62% of firms are Irish-owned demonstrating strong domestic engagement in innovation; 19% are US-owned subsidiaries and 13% foreign (non-US) subsidiaries, followed by University spin-outs and other categories of enterprise. 54% of companies employ between 1-10 directly in R&D activities; 28% have 11-50 employees engaged and 18% have 51 or more employees engaged.
Funding supports must continue to play a Pivotal Role
Consistent with a trend noted over the past two years of the IRDG / KPMG analysis, limited budget continues to be reported as the biggest factor impacting companies’ ability to innovate - with 64% of respondents (up from 60% in 2024 and 50% in 2023) now stating it to be one of the biggest factors affecting their innovation potential.
Amid increasing economic and competitive pressures, the R&D Tax Credit remains the most widely used support, with 64% of businesses surveyed claiming it. However, constraints such as administrative complexity and time requirements were cited by 39% as barriers to broader participation. Notably, 56% of multinational companies surveyed reported that only 10% or less of their R&D would remain in Ireland without the availability of this credit.
This underscores the critical nature of financial supports in sustaining R&D activity in Ireland and the direct link that exists between policy incentives and job creation.
While 65% of companies increased RDI investment over the past three years, this is down from 74% in 2024. However, 71% expect their investment to grow in the next three years, providing clear opportunities for R&D incentivisation to spur on this growth.
There are also significant gaps. Existing supports do not cover many of the high risk and uncertain elements of innovation critical to business performance.
61% of respondents indicated that State funding supports have allowed more R&D to take place; 47% stated that they supported more employment and 40% noted that funding supports encouraged more investment internally.
Innovation driven by Product Development and AI
72% of all businesses have a dedicated structure to drive RDI indicating the importance of RDI to the business. This rises to 90% for those claiming the R&D Tax Credit.
The R&D Tax Credit has clearly driven professionalisation of R&D Management over the past two decades, and an Innovation Tax Credit could similarly underpin a step change in Irish Innovation. This is in marked contrast to general Innovation Management where only 21% of companies have a structured management process in place with 24% working on such a process.
Identifying new customer needs (73% of respondents) is the main factor inspiring companies to innovate. Identifying sustainable new market opportunities and optimising process efficiency are also significant drivers.
Product innovation continues to be a core RDI focus, with 76% of respondents targeting it now and 81% prioritising it over the next three years. Technological and digital innovation (64% of respondents); Process Innovation (58%); Service Innovation (36%) and Customer Experience Innovation (35%) also rank highly among several other categories.
Cost reduction and operational efficiencies surged in importance for companies surveyed, rising from 31% in 2024 to 52% in 2025.
This focus on cost reduction and operational efficiencies is expected to continue considering the current international landscape and global trading challenges, with tariffs impacting profitability for many companies. Meanwhile, 46% plan to prioritise AI and disruptive technologies, showing a shift towards tech-enabled transformation.
These trends highlight how Irish-based companies are positioning themselves not only to refine their existing offerings but also to embrace technological disruption, which is critical for staying competitive in the fast-evolving global market.
‘Incremental innovation’ continues to be essential for a majority of companies (74%), with ‘breakthrough’ and ‘disruptive’ innovation activities identified essential by 51% and 35%, respectively. This suggests a pragmatic innovation strategy being adopted by firms seeking tangible improvements and advancements without taking unnecessary risks - especially important amid economic uncertainty.
New Innovation Tax Credit urgently needed
The Innovation Index research confirms that administrative complexity and uncertainty around the definition of what qualifies for a claims submission are the primary deterrents for companies to avail of relevant incentives.
Smaller-scale projects particularly suffer as companies perceive the administrative cost outweighs potential benefits. An overhaul of the existing system is required, including simplification for SMEs, a central administrative unit in Revenue to improve processing and increased outsourcing thresholds.
The research also highlights a significant amount of innovation happening in Ireland that falls outside the existing boundaries of ‘scientific uncertainty’ in the R&D Tax Credit. These include customer experience design, innovation within the social sciences (such as behavioural sciences), circular economy breakthroughs, product design and entirely new digital-first business models.
This work doesn’t always fit neatly into the current R&D Tax Credit. But this is exactly where many Irish SMEs and scale-ups are investing in their futures and it is high-risk, high-skill and mission-critical for tomorrow’s economy.
Both IRDG and KPMG have proposed the creation of a specific new Innovation Tax Credit (ITC) to support high risk innovation in the same way the R&D Tax Credit has supported high risk R&D over the past 21 years.
Green Innovation an opportunity gap
As Ireland seeks to accelerate its climate performance, there is growing momentum to boost green R&D. Yet currently only 35% of companies are actively investing in sustainability related innovation (developing products or services that drive sustainability versus investing in off-the-shelf products like solar etc). Only an additional 6% of companies have indicated they plan investment in this area over the next three years.
A striking 76% of respondents said that a 50% enhanced tax credit for green innovation would stimulate investment by them in sustainable technologies. With only 35% of companies currently investing in these technologies, this highlights a ripe opportunity for Ireland to lead in climate innovation by aligning fiscal policy with sustainability targets under the Paris Agreement and the EU Green Deal.
Ireland faces the potential for significant financial penalties, estimated in a recent joint report by the Irish Fiscal Advisory Council and the Climate Change Advisory Council to range from €8 to €26 billion, if it fails to meet its EU-agreed climate targets.
The creation of a new incentive linked directly to decarbonisation outcomes would not only deliver jobs and revenue, it would be fiscally prudent for the state.
International Comparison
Over half (53%) of MNC companies surveyed said that Ireland’s R&D grant and tax supports compare ‘favourably’ or ‘equally’ to other countries. Conversely, 16% feel Ireland compares ‘less favourably’ to other countries, with 31% saying they were unsure about how Ireland compares to other jurisdictions.
This suggests the need for well-defined messaging and definitively competitive policy around RDI incentives where, as companies consider how to allocate global and domestic R&D budgets, Ireland must continually refine its offering to remain an attractive destination.
Dermot Casey, CEO of the Irish Research Development Group (IRDG) said:
“Ireland is at a crossroads. In a world jolted by inflation, geopolitical turmoil and climate change, our competitiveness and our ability to successfully navigate the challenges ahead will rise or fall on the strength of our Research, Development and Innovation (RDI).
“The 2025 Innovation Index shows that most Irish-based firms now treat RDI as mission-critical, essential to their long-term sustainability and success. A thriving innovation ecosystem ensures Irish companies emerge as leaders in a rapidly changing global economy. It sustains high-value employment and anchors global operations and mandates here in Ireland.
“Government must show courage and leadership to match industry ambition. A modern, user-friendly Innovation Tax Credit will unlock the next wave of growth. Combined with a renewal of the existing R&D Tax Credit and enhanced sustainability supports, Ireland can be a world leader in RDI. In a volatile global economy, the bold path is the safest path. The future belongs to those who act decisively and invest strategically.”
Ken Hardy, Head of KPMG’s RDI Incentives Practice said:
“Ireland’s ability to compete globally for R&D investment depends heavily on the strength and clarity of its innovation incentives. The Innovation Index signals that RDI is directly linked to job creation, investment decisions and the retention of high-value, knowledge-dependent roles in Ireland. With strong foundations and high levels of engagement, the challenge for industry now lies in removing barriers, refining processes and leveraging the available fiscal supports - including green innovation. Continued progress in all of these areas will be critical for sustaining Ireland’s innovation leadership and meeting global challenges head-on.
“Again, this year we make a number of practical recommendations as to how to improve the R&D tax credit and provide companies, both large and small, with a greater ability to develop their products and processes, and improve their competitiveness. The Research, Development and Innovation sector will welcome the opportunity to engage with Government on this essential subject.”
