Increased R&D Tax Credit shows clear impact as companies prioritise research and innovation amid global uncertainty - IRDG & KPMG Report.
Specific Innovation Tax Credit urgently needed to bridge structural gaps in Ireland’s R&D competitiveness framework
The 2026 Ireland Innovation Index report from IRDG and KPMG shows that Irish businesses are strongly committed to research, development and innovation (RDI), with fresh evidence that the Government’s R&D tax credit is directly driving new investment, even as companies contend with geopolitical uncertainty, international tax changes and competitive pressures.
The 2026 Ireland Innovation Index is the annual nationwide survey by the Industry Research & Development Group (IRDG) and KPMG. This fourth annual report gathered detailed responses from a record 587 companies who are actively engaged in innovation across Ireland.
The findings show a significant boost in R&D activity arising from the R&D Tax Credit, which was increased from 30% to 35% in last year’s budget.
69% of businesses say they have increased R&D spend over the past three years, while 77% expect to increase investment over the next three years.
In relation specifically to the recent 5% uplift in the tax credit, 58% of companies surveyed said they are directing this additional incentive into existing R&D projects, while 57% say it will support entirely new R&D activity. A further 39% say the enhanced incentive will support them hiring or retaining dedicated R&D staff.
The findings also show the importance of the R&D tax credit in attracting and maintaining R&D activity and jobs in Ireland, with over half (54%) of MNCs saying that, without the credit, 10% or less of their R&D would take place in Ireland.
For context, in terms of actual numbers of companies availing of the incentive, the latest available Revenue figures (2023) showed 1,804 claimants - the highest figure since the credit was introduced in 2004. In 2023, 225 large companies received over €764 million in R&D tax credits, while a further €213 million in R&D tax credits was claimed by 1,579 SMEs.
Companies claiming the R&D tax credit are also significant contributors to the Exchequer through corporation tax. In 2023, total corporation tax liabilities for all claimant companies were €10.53 billion, with €8.81 billion of that amount attributable to companies claiming in excess of €1 million of R&D tax credits.
The report also highlights the increasing strategic importance of advanced technology in Ireland’s innovation economy. AI and disruptive technology is now a priority for 67% of respondents over the next one to three years, up sharply from 45% in 2024. This is the largest movement recorded in any innovation priority category over the four-year life of the Index.
‘Disruptive technology’ is innovation that significantly alters established industries and markets. The trends in this area reflect a profound shift in how Irish businesses are approaching innovation, with artificial intelligence moving rapidly from experimentation to operational deployment, productivity enhancement and product development.
Necessity for Specific Innovation Tax Credit
The R&D Tax Credit remains a critical pillar of Ireland’s competitiveness offering and continues to underpin significant investment decisions.
However, many forms of modern commercially valuable innovation sit outside the traditional fields of science and technology, within which activity must fall in order to qualify. This tends to exclude innovation such as digital transformation, design-led innovation, advanced process innovation and business-model innovation, the report says.
As a result, 71% of companies surveyed said a specific new Innovation Tax Credit would enable more innovative work to take place in Ireland, while a corresponding 67% believe it would support new product and service development.
Almost half (45%) of respondents said an innovation tax credit would directly support increased IP creation and protection in Ireland. 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.
The report identifies a significant participation gap between large businesses and smaller firms. SMEs are twice as likely to be aware of available supports, but not use them. Those surveyed also remain markedly less satisfied with the timing of R&D tax credit refunds, which creates particular cashflow challenges for smaller innovation-led businesses.
While Ireland has built a strong R&D support framework, the findings suggest that significant practical barriers remain for innovative companies, including SMEs, that the Government most wants to encourage.
Dermot Casey, CEO of IRDG, said: “Ireland's innovation economy continues to demonstrate resilience and ambition despite global turmoil. The recent R&D Tax Credit reforms are working: 77% of the 587 companies surveyed plan to increase R&D spend over the next three years.
“But structural gaps remain. Public R&D investment is half the EU average. On non-R&D innovation, Ireland ranks 26th of 27 in the EU for design applications and last for trademarks. 71% of companies back an Innovation Tax Credit designed for AI, digitalisation and design — areas the current credit can't reach. With 67% now ranking AI and disruptive technologies among their top priorities, up from 45% two years ago, the case for the new credit is urgent. Combined with a doubling of public R&D over three years, these investments will build long-term resilience, competitiveness and growth."
Damien Flanagan, Partner and Head of R&D Incentives at KPMG, said: “This year’s findings show meaningful progress, but they also point clearly to the next phase of policy action. The increased rate of R&D tax credit is actively stimulating additional innovation investment, new project activity and employment. However, continuous evolution is required to ensure Ireland remains ‘best in class’. The R&D Compass, published earlier this year by the Department of Finance, highlights the areas this evolution should focus on.
“One such area is a specific Innovation Tax Credit to support commercially valuable activity that falls outside the current regime. This should be designed to ensure that Ireland’s incentives framework properly reflects the modern realities of AI-led, digital and technology-driven innovation.”
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