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Digital Gaming Credit

A new tax credit for digital games development has been launched by the Irish government.

The tax credit was initially introduced into legislation by section 33 of Finance Act 2021, subject to a commencement order, as the scheme required European Commission approval under EU state aid rules. This approval was granted, allowing the commencement order to be made by Minister Donohoe in November 2022. The relief is available from 22 November 2022.

Speaking at the launch of the regime, Minister Donohoe noted that the regime will ensure Ireland is competitive in an industry worth up to €260bn. Due to the way the credit operates, it will continue to be of real benefit even where a 15% global minimum corporate tax rate is introduced. As such, companies deciding on the location for future projects should consider the regime carefully.

We have summarised this regime, along with some of Ireland’s other advantages, below.

Ireland as a leading destination for Intellectual Property law in the Gaming Industry

For companies in the gaming industry which are seeking a jurisdiction with a strong legal framework, favorable tax regime, and a skilled workforce for their intellectual property needs, Ireland is an ideal destination. Ireland has established itself as a leading center for the protection and management of IP assets, especially for companies in the gaming sector. When considered alongside Ireland’s legal system, the new tax credit should make Ireland an even more attractive jurisdiction for digital gaming companies. Some other reasons why Ireland is a great jurisdiction for IP law in the gaming industry are as follows:

  1. Robust Legal Framework: Ireland has a legal framework that can be advantageous to the gaming industry, Ireland’s laws and regulations for the protection and enforcement of intellectual property rights are robust, modern, and clear. There is a specialist intellectual property Commercial Court, which has gained an enviable reputation for the speed and effectiveness with which it hears and deals with IP infringement cases.
  2. Favourable Tax Regime: Ireland’s tax regime for the gaming industry is particularly attractive. Ireland has a low corporate tax rate of 12.5% in respect of trading income. Ireland also has a generous R&D tax credit regime, providing a 25% tax credit to qualifying companies which incur costs on research and development activities. Additionally, the Knowledge Development Box regime is available to qualifying companies, allowing profits arising from patents, copyrighted software or IP equivalent to a patentable invention, to be taxed at an effective rate of 6.25%.
  3. Skilled Workforce: Ireland is home to a highly skilled and educated workforce, particularly in the areas of software development, computer science, and engineering. This makes it an ideal location for gaming companies engaged in R&D or other IP-intensive activities. Ireland is also home to a number of world-class research institutions, such as Trinity College Dublin and the Tyndall National Institute, which can provide valuable support to gaming companies looking to innovate and develop new IP.
  4. Strategic Location: Ireland’s location at the crossroads of Europe and the Americas makes it an ideal gateway for gaming companies looking to do business in these regions. The country has excellent air and sea connections, with direct flights to major cities in Europe and North America.

Summary of the Scheme

The scheme enables eligible companies to avail of a refundable tax credit equal to 32% of expenditure incurred on the design, production and testing of a digital game, up to a limit of €25m per project, meaning that the scheme could be worth up to €8 million (32% of €25m) to recipients of the credit.

The total amount of the credit available per project is 32% of the lowest of:

  • the eligible expenditure;
  • 80% of qualifying expenditure; or
  • €25m.

The “eligible expenditure” is the portion of the “qualifying expenditure” spent in Ireland or the European Economic Area (EEA). The “qualifying expenditure” is the overall expenditure that is incurred on the design, production and testing of a digital game. The tax credit is available in addition to the standard tax deduction on qualifying expenditure of 12.5%. There is a minimum spend requirement of €100,000 per project in order to qualify for the tax credit.

A “digital game” is a game which integrates digital technology, and incorporates at least three of the following classes of information, in digital form:

  • text;
  • sound;
  • still images; and
  • animated images,

The game must be capable of being published on an electronic medium and controlled by software, enabling the person playing the game to interact fully with the dynamics of the game.

The tax credit will not be available where the digital game is produced solely or mainly for the purposes of advertising or gambling.

The game must be considered to be an “exempted work” within the meaning of the Video Recordings Act 1989 which means that amongst other exclusions, the game cannot promote violence, cruelty, hatred or the incitement of crime. Exempt status is determined by the Irish Film Classifications Office (IFCO). In line with IFCO practice, evidence of exempt status will be either a PEGI rating of 16 or lower, or in the case of games with a PEGI rating of 18, and in all other circumstances, confirmation of exempt status from IFCO.

Who can apply for the tax credit?

A “digital games development company” can apply for the tax credit. This is a company that:

  • is resident in Ireland, or is resident in an EEA State and carries on a business in Ireland through a branch or agency;
  • carries on a trade of developing digital games on a commercial basis with a view to the realisation of profit, and that are wholly or principally to be made available to the public; and
  • is not part of an undertaking which would be regarded as an undertaking in difficulty.

Certain other conditions need to be met in order for a company to be entitled to the credit including that the company, its subsidiaries and its majority shareholders are tax compliant.

There should also be a commercial rationale for the corporate structure proposed for the project. It is not possible to claim relief for both the digital games tax credit and the film tax credit in respect of the same expenditure.

How can the tax credit be claimed?

An application needs to be made to the Minister of the Department of Tourism, Culture, Arts, Gaeltacht, Sport and Media to receive a certificate of approval for the tax credit.

Where development of the game is not complete, an interim certificate can be issued. Where a game is completed, a final certificate is issued. An interim or final certificate will only be issued if the game passes the “cultural test”. The cultural test considers whether the development of the digital game has made a contribution to the promotion and expression of Irish and European culture, by reference to a number of criteria such as the cultural content of the game, including its setting, principal characters, language and subject matter.

Where an interim certificate has been issued to a company it must claim the credit within 12 months of the end of the accounting period in which the expenditure was incurred. Where a final certificate has been issued to a company it may make a claim for the tax credit less any amount already claimed in respect of an interim credit. The tax credit is first set off against the corporation tax liability of the company. Where the tax credit exceeds the corporation tax liability, Revenue will refund the excess to the company. As such, the credit should be considered a refundable tax credit for the purposes of calculating the effective tax rate under the Global Anti Base Erosion (GloBE) rules which means it should continue to be of benefit following the introduction of the rules designed to ensure multinationals pay a 15% global minimum tax.

Records to be provided and maintained by a digital games development company

In addition to the above, a digital games development company, when requested to do so by Revenue, will be required to provide the following information in relation to a qualifying digital game:

  • a breakdown of expenditure to show qualifying expenditure;
  • a breakdown of expenditure to show eligible expenditure;
  • the development budget;
  • full development accounts; and
  • details of any transactions with connected persons.

Obligations of claimant company once development of a digital game is complete

A company must notify the Minister in writing of the date of completion of the game within 6 months of the date of such completion. The company must also, within 6 months of the completion of the game, provide copies of the digital game to the Minister in the format and manner as may be specified in the certificate issued by the Minister. Following the issuance of a final certificate the company must provide a compliance report to Revenue. A company will not be able to avail of the tax credit where it ceases to carry on trading within 12 months of submitting the compliance report.

Where can further details be found?

At William Fry, we have extensive experience in advising gaming companies on all aspects of IP and tax law in Ireland including any eligible tax benefits for gaming companies. We can assist with the identification, protection, exploitation and enforcement of IP rights, the structuring of projects and we understand the unique challenges faced by gaming companies in protecting their IP, enabling us to provide tailored solutions to meet their specific needs.

If you have any further questions relating to the new digital games tax credit or on protecting your IP assets, or if you would like assistance in claiming this new credit, please contact any of the William Fry tax or technology team.