Empty Link Skip to Content

New tax credit relief for digital games under the Finance Bill 2021

AUTHORs: Mark O'Sullivan co-author(s): Jade du Berry Services: Tax DATE: 03/12/2021

The Finance Bill 2021 (the “Bill”), introduced a new tax credit relief for the digital gaming sector.  The relief will support digital games development companies by providing a refundable corporation tax credit for qualifying expenditure incurred on the design, production and testing of an eligible digital game.  

What relief is available?

The new relief (the “Relief”) will be available at a rate of 32% on eligible expenditure up to a maximum limit of €25 million per project.

The Relief will take the form of a corporation tax credit for digital games which have been finalised or an interim corporation tax credit for games which are still in production.

Who qualifies for the Relief?

Digital games development companies (“DGDCs”) can apply for the relief in respect of expenditure occurred during the relevant financial year.  DGDCs are companies which are resident in Ireland, or an European Economic Area (“EEA”) jurisdiction other than Ireland and carry on business in Ireland through a branch or agency.

What constitutes a digital game?

Under the draft legislation, a digital game is a game which (a) integrates digital technology;  (b) incorporates at least three of the following:  text, sound, still images, and animated images, and animated images;  (c) is capable of being published on an electronic medium;  and (d) is controlled by software enabling the person playing the game to interact with the dynamics of the game.

Relief will not be available for games primarily produced for the purposes of advertising or gambling. 

What kind of expenditure qualifies for relief?

There are two different types of expenditure which can qualify for the Relief.  The first is ‘qualifying expenditure’, which is the overall expenditure incurred by the DGDC on the design, production and testing of the digital game.  The second is ‘eligible expenditure’, which is the portion of the qualifying expenditure incurred in Ireland or the EEA. 

Relief will be available at a rate of 32% on the lowest of:  (a) the eligible expenditure amount;  (b) 80% of the qualifying expenditure amount;  or (c) €25 million.  This means the maximum possible value of the Relief per project will be  €8 million.  If the qualifying expenditure incurred is less than the de minimis amount of €100,000, the Relief cannot be obtained.

How can the Relief be obtained?

In order for the Relief to be granted, the DGDC must firstly make an application to the Department of Tourism, Culture, Arts, Gaeltacht, Sports and Media (the “Department”) to be issued with an interim or final certificate.  The draft legislation also grants the Revenue Commissioners the power to make further regulations with respect to the administration of the relief.

An interim certificate can be issued in respect of a digital game which is still in production and a final certificate can be issued in respect of a completed game.  Most importantly, these certificates will be subject to a cultural test administered by the Department.

What is the cultural test?

In deciding whether to grant the certificate needed to obtain the Relief, the Department will consider the contribution which the development of the digital game is expected to make to the promotion and expression of Irish and European culture. 

Relevant factors which are to be considered under this test include (but are not limited to) the setting, principal characters, language and subject matter of the game;  the use of materials written or created in Ireland or Europe;  the portion of creative work carried out in Ireland or another EEA state;  and the number of key positions held by developers who are nationals of or resident in Ireland or another EEA state. 

Relationship between interim and final certificates

Interim certificates, which will be issued subject to the same cultural test as final certificates, will carry an expiry date.  On the expiry date, the interim certificate will cease to have effect and will be treated as never having effect unless an application is made in advance of the expiry date for a final certificate and the Department decides to grant the final certificate.  The Department will specify certain conditions, having regard to the cultural test, to be met within both interim and certificate certificates.  Relief in the form of a tax credit will only be granted if these conditions have been met.

If the Department issues a final certificate, the DGDC can make the claim for the corporation tax credit less the amount, if any, already claimed under an interim certificate.  If the amount of the credit exceeds the corporation tax, Revenue shall pay the excess to the DGDC and such payment will be deemed an overpayment of corporation tax. 

Estimated timeline

The Bill is scheduled to be passed into law by the end of 2021.  However, due to EU state aid rules, the introduction of the Relief will not come into force until a separate Ministerial Order is signed later in  2022.  The new regime will need to be notified to the European Commission and the commencement of the Relief will be contingent on approval from the European Commission under state aid rules.  The Relief will run until 31 December 2025.