Knowledge Development Box

Definition

The Knowledge Development Box (KDB) is a tax relief designed to encourage companies to engage in research and development (R&D) activities. 

What is the Knowledge Development Box?

The KDB allows companies to benefit from a reduced corporate tax rate on profits gained from qualifying intellectual property (IP) assets, such as patents and copyrighted software, that result from R&D activities conducted in Ireland.

The key feature of the KDB is the application of a preferential tax rate of 6.25% on qualifying profits, significantly lower than the standard corporate tax rate of 12.5%. To be eligible for this reduced rate, companies must meet specific criteria outlined by the Revenue Commissioners. These criteria include demonstrating that the profits are linked to qualifying IP, which has been developed through substantive R&D activities carried out within Ireland.

The KDB is designed to promote innovation and economic growth by encouraging companies to invest in R&D and develop high-value IP within Ireland. It aims to make Ireland an attractive location for multinational corporations and domestic companies looking to create and manage their IP portfolios.

By providing tax relief on profits generated from IP, the KDB supports businesses in reinvesting in further innovation and development, enhancing their competitiveness in the global market, and contributing to the broader objective of fostering a knowledge-based economy in Ireland.

Example of the Knowledge Development Box

A pharmaceutical company in Galway develops a new patented drug through extensive research and development conducted in Ireland. Under the Knowledge Development Box scheme, the company can apply the tax rate of 6.25% to the profits earned from this patented drug.

This reduced tax rate significantly lowers the company’s tax liability on the revenue generated by the new drug, providing substantial savings. The financial benefit allows the company to reinvest these savings into further R&D projects, accelerating innovation and growth while improving its competitive edge in the pharmaceutical industry.