Knowledge Development Box
The Knowledge Development Box (KDB) was introduced in the Finance Act 2015. It is a tax incentive policy tool to encourage innovation by applying a lower rate of corporation tax on profits on Intellectual Property Assets resulting from qualifying research and development activities carried out within the meaning of section 766 of the Taxes Consolidation Act 1997. The KDB provides for a reduced rate of corporation tax (6.25% down from 12.5%) payable on such profits arising from qualifying IP assets.
The KDB provisions in Chapter 5 of Part 29 of the Taxes Consolidation Act (TCA) (as amended by Finance Act 2015), define qualifying intellectual property assets as:
- an invention protected by a qualifying patent;
- a computer program /copyrighted software, and
- inventions of small companies which are patentable but have not been patented and have been kept secret;
The qualifying assets must be the result of R&D.
Certain other IP such as supplementary protection certificates (SPCs) and plant breeders rights may also be qualifying assets. However, any marketing related IP such as trademarks, brands, image rights and other intellectual property used to market goods or services cannot be a qualifying asset. Short term patents are not qualifying assets.
For more information on KDB qualifying assets please consult the Revenue Guidance Notes at Revenue.ie
What are qualifying patents?
A qualifying patent is defined as:
“ (a) a patent granted following substantive examination for novelty and inventive step, or
(b) a patent, other than a short term patent within the meaning of section 63 of the Patents Act 1992, or an equivalent provision in another jurisdiction, where - (i) the Patents Office in the State, or equivalent Office elsewhere, has caused a search to be undertaken in relation to the invention and a search report (within the meaning of section 29 of the Patents Act 1992) prepared,……”
Short term patents are not qualifying patents.
The majority of claims under the KDB, are expected to be in relation to income arising from inventions protected by patents granted following substantive examination for novelty and inventive step. In order to ensure that that Irish long-term patents can qualify for KDB, the Patents Act 1992 has been amended (by Part 6 of the Knowledge Development Box (Certification of inventions) Act 2017(the KDB Act) in order to facilitate the granting of Irish long term patents following substantive examination for novelty and inventive step.
The Patents Rules have also been amended by the Patents (Amendment) Rules, 2017( S.I. No. 206 of 2017) in consequence of the amendments to the Patents Act.
How do inventions of small companies which are patentable but have not been patented and have been kept secret, qualify for the KDB?
A small company is defined for KDB purposes as a company which has income arising from intellectual property of less than €7,500,000 in a 12 month accounting period, is a member of a group with group turnover of less than €50,000,000 and the company is a micro, small or medium sized company within the meaning of the Annex to Commission Recommendation 2003/361/EC of 6 May 2003.
Intellectual property assets of small companies which are inventions that share features of patents i.e. they are non-obvious, useful and novel, may be eligible for KDB tax relief, provided they are so certified by the Controller of Patents, Designs and Trade Marks.
The KDB Act (commenced on 19 May 2017) empowers the Controller of Patents, Designs and Trade Marks to provide the necessary certification.
The application form for a KDB Certificate and guidance on the application process and procedure may be found here.