The Irish Government announced a new tax credit for digital game developers in Budget 2022. This new regime provides tax credit of up to €8 million for companies that incur qualifying expenditure on the development of digital games. Following the receipt of approval from the European Commission under EU State Aid rules, the new digital tax credit was formally launched on 21 November 2022. On 16 November 2022 a commencement order brought this new tax credit regime into effect and as of 22 November 2022 supplemental regulations were also introduced .
Why is this tax credit being introduced?
It is estimated that the global gaming market is valued at around €200 billion, and the Irish Government has adopted a clear policy of attracting investment from this sector to Ireland. Ireland has several university courses which focus on specific skills needed for video game development. The introduction of this new tax credit marks a clear intention from the Irish Government to encourage investment in the video game industry with the aim of capitalising on synergies with Ireland's established technology, film and animation sectors.
Who can claim this new tax credit?
The tax credit will be available for digital games development companies that are resident in the EEA and carry on a business in Ireland that involves investment on the design, production and testing of a digital game. The credit is not available for games developed mainly for the purpose of advertising or winning cash or valuable prizes. It is also not available for the design of the initial concept of a game, for debugging / maintenance of a game that has already been completed or for subcontractor payments exceeding €2 million.
One further condition to qualify for this tax credit is that developers must incur minimum qualifying development expenditure of at least €100,000.
In order to qualify for the credit, developers need to apply to the Department of Tourism, Culture, Arts, Gaeltacht, Sport and Media to obtain a certificate of approval for the credit. This application must include details as to the contribution the digital game is expected to make to the promotion and expression of Irish and European culture. Relevant factors that will be considered by the Minister when granting certificates include:
- the cultural context of the game including its setting, characters, language and subject matter;
- the use of materials written or created in Ireland or Europe or use of music composed by Irish or EU nationals;
- the proportion of creative work carried out in Ireland or the EU or the number of key positions in the development of the game held by Irish or EU nationals;
- the educational content of games aimed at children and inclusion of themes relating to diversity and equality; and
- whether the content of the game promotes Irish or EU terrestrial ecosystems or raises awareness of environmental sustainability and climate change.
How does the tax credit work?
A refundable corporation tax credit is available for qualifying expenditure on the design, production and testing of a game that integrates digital technology, is published on an electronic medium and is controlled by software enabling the player to control and interact with the game.
The total amount of tax credit available over the life of the project is capped at a maximum of 32% of the lowest of:
a) 80% of the total qualifying expenditure;
b) 100% of qualifying expenditure in Ireland or in the EEA; or
c) €25 million.
In other words, the maximum amount of credit that can be claimed is €8 million per project (32% of €25 million). To the extent the tax credit exceeds the developer's tax liability in a tax year, the excess can be refunded in cash or applied against other liabilities.
The tax credit is available in addition to the standard tax deduction (at 12.5%) but cannot be claimed on expenditure in respect of which Irish R&D tax credits have been claimed or expenditure which has been met by EU grant assistance.
How can I claim the credit and when is it available?
The digital gaming tax credit is claimed in the annual corporation tax return once the taxpayer has obtained either an interim certificate from the Minister or a final certificate at the end of the development process. It is expected certificate holders will be able to apply for remuneration under the credit from Revenue from 1 January 2023 and the scheme is currently proposed to run until 31 December 2025.
Where can I find more details?
Should you have any questions in relation to the new Irish digital gaming tax credit or if you require any assistance with claiming this, please do not hesitate to contact one of the members of the Matheson tax team.