Ireland’s Budget 2026: Innovation First

The big signal: Ireland is turning the innovation dial up. Budget 2026 lifts the R&D tax credit to 35 percent, introduces an “R&D Compass” to modernise rules such as outsourcing and qualifying cost definitions, and improves liquidity for smaller claimants through a higher first-year payment cap of €87,500. Together these measures mean greater certainty, faster cash-flow and a stronger runway for scale-ups and multinationals to build and retain R&D activity in Ireland.

The Innovation Framework: What’s Changing and Why It Matters

35 percent R&D credit rate

A clear step up from 30 percent that improves project ROI and helps maintain Ireland’s global competitiveness for mobile R&D investment.

Faster refunds for SMEs

The first-year instalment rises to €87,500, allowing many smaller claims to be fully refunded up-front and mid-size claims to be paid more quickly.

Simpler payroll apportionment

Where an employee spends 95 percent or more of their time on qualifying R&D, 100 percent of emoluments can be treated as qualifying expenditure. This removes administrative friction and improves audit certainty.

The forthcoming “R&D Compass”

Government will publish targeted reforms aligning the credit with modern R&D models, including outsourced and collaborative projects. This update is expected through the Finance Bill 2025 and should bring long-awaited clarity on subcontractor eligibility and cost sharing.

Ecosystem supports

Increased funding for Enterprise Ireland and Local Enterprise Offices, plus an extension of the KEEP share-option scheme to 2028, reinforce Ireland’s innovation workforce and founder base.

Creative-tech uplift

The Digital Games Tax Credit is extended to 2031 and widened to cover post-release content, supporting studios that blend R&D with production.

Overall impact

The higher rate, improved liquidity and streamlined administration make Budget 2026 one of the most pro-innovation packages in recent years.

Snapshot of Other Budget 2026 Measures

• VAT: 9 percent VAT for food, catering and hairdressing from 1 July 2026; 9 percent VAT for gas and electricity extended to end-2030; 9 percent VAT on apartment sales; and enhancements to the Living City scheme.

• Income tax and USC: The USC middle-band threshold increases by €1,318; no major changes to core tax credits.

• Entrepreneur relief: Lifetime limit for the 10 percent Capital Gains Tax Entrepreneur Relief increases to €1.5 million.

• Enterprise funding: The Budget’s €9.4 billion overall package remains framed as strongly pro-enterprise with emphasis on innovation and regional development.

  
  

What Innovative Firms Should Do Now

1. Re-run 2026-2028 business cases using the 35 percent rate and €87,500 payment cap to understand revised project economics.

2. Review payroll allocations and apply the 95 percent rule where appropriate to strengthen claims and simplify evidence.

3. Prepare for the R&D Compass by documenting outsourced and collaborative work so you can adapt quickly when new guidance is published.

The Takeaway

Budget 2026 is not just an incremental adjustment to the R&D credit. It is a clear statement that Ireland intends to lead in innovation-driven growth. With higher relief, improved access for SMEs and an updated legislative framework on the way, the future for innovative Irish businesses looks brighter than ever.

At R&D Tax Solutions, we’ve helped hundreds of SMEs claim millions in Innovation Incentives.

Whether you’re a first time claimant or just want a no-obligation risk review of your current R&D claims, we’re expertly placed to advise you and your team.

Reach out today to speak with one of our team and supercharge your future plans with transformative funding.