knowledge 18 September 2026 |

Budget 2027: Life Sciences Sector calls for R&D Tax Credit Reform

Why Life Sciences Matters to Ireland

The numbers speak for themselves. Ireland's biopharmachem sector directly employs 73,000 people, with a further 30,000 in indirect roles, and the country is one of the largest net exporters of pharmaceuticals globally, with annual exports of approximately €175 billion. 13 of the top 15 global biopharma corporations have significant operations here, and over €12 billion has been invested in the sector over the past decade.

The medtech sector is equally impressive. Ireland ranks among the top 5 medtech hubs worldwide, with more than 550 companies directly employing 50,000 people and generating €20 billion in annual exports. Major clusters span Galway, Sligo, Dublin, Waterford, Cork and Limerick.

Together, these industries anchor high-value regional employment, drive global healthcare advancements and deliver substantial economic growth. Maintaining Ireland's leading position in an increasingly competitive global environment will, however, require continued commitment. Geopolitical shifts, growing competition from the US and China for R&D investment, evolving trade dynamics and rising energy costs all underline the importance of proactive policy measures.

The R&D Tax Credit: A Cornerstone of Ireland’s Corporation Tax Policy

The R&D tax credit has been a cornerstone of Ireland's corporation tax policy since its introduction in 2004, reflecting Ireland’s long-standing commitment to attracting and retaining innovation-driven investment. It is now available at a rate of 35%, following successive increases, and applies to expenditure incurred wholly and exclusively in carrying on qualifying R&D activities involving systematic, investigative or experimental work in a field of science or technology. 

The credit is widely regarded as instrumental in attracting and retaining foreign direct investment and in supporting the development of Ireland's indigenous innovation-driven enterprise sector. Encouragingly, the Government's own Research and Development Tax Credit and Innovation Compass, published earlier this year, recognises this success and sets out a framework for the regime to continue evolving in a changing global environment.

What Industry Is Proposing

The pre-Budget submissions from across the life sciences sector align around several key priorities:

• Expand the scope of qualifying R&D activities to encompass process innovation. Life sciences manufacturing is evolving rapidly, with companies investing heavily in processes that do not always fall neatly within the traditional definition of qualifying R&D. The sector has proposed that the credit be broadened to encompass advanced process innovation, digital transformation, sustainability and AI adoption. The medtech sector has separately proposed a dedicated innovation credit, modelled on the R&D tax credit.
• Modernise the sub-contracting rules and deepen industry–academia collaboration. The current caps on outsourced R&D expenditure, limited to the greater of 15% of in-house R&D spend or €100,000, could benefit from updating. While universities and institutes of higher education are already eligible sub-contracting partners, the sector has proposed that the definition be widened to also include research institutes and university research hospitals, and that the spending caps be significantly increased or removed, fostering deeper collaboration between industry and Ireland's third-level and research sector. Stronger industry-academia links would help build knowledge exchange, ensure graduates emerge with the skills industry needs, and give students the opportunity to engage with cutting-edge developments in their fields.
• Drive more clinical trials to Ireland. Clinical trials are a critical phase of the innovation lifecycle, but they are expensive, with external provider costs often significantly exceeding internal R&D spend. Under the current sub-contracting restrictions, the significant costs of clinical trials (payments to contract research organisations, hospitals, investigators and laboratories) are often not claimable, even where all activity takes place in Ireland. As a result, Ireland is attracting fewer clinical trials than European benchmark peers such as Denmark. The sector has proposed that these restrictions be updated, with enhanced rates for basic and applied research to encourage earlier-stage activity.
• Support global mandates from Ireland. Many of Ireland's life sciences companies manage R&D programmes that span multiple jurisdictions, yet the current rules do not allow qualifying expenditure on R&D carried out by connected parties overseas, potentially putting Ireland at a disadvantage when companies decide where to base these functions. The sector has proposed that the credit allow qualifying expenditure on offshore connected-party R&D, subject to a cap of 100% of domestic R&D spend, enabling Irish-based companies to manage global R&D programmes while retaining IP and economic value in the State.

Looking Ahead

The Government has signalled through its Research and Development Tax Credit and Innovation Compass that it shares the sector's ambition, committing to a holistic review of the sub-contracting provisions, an examination of qualifying expenditure definitions and a review of a new tax-based support for innovation. While the Compass is framed as a set of areas for future consideration rather than a roadmap of specific commitments, the direction of travel is positive.

We will have to wait and see what is delivered on 6 October. Budget 2027 will be an important indicator of how quickly the Government intends to translate its stated priorities and industry's constructive proposals into concrete fiscal measures that further strengthen Ireland's position as a world-class life sciences hub.