Introduction
Ireland’s Minister for Finance recently formally launched the Digital Games Tax Credit.
The measure was originally provided for in Finance Act 2021 subject to commencement order and, importantly, EU State Aid approval.
The European Commission has now provided that approval and a commencement order has now been passed.
It is expected that qualifying certificate holders are able to avail themselves of the relief from 1 January 2023.
Digital Games Tax Credit - What is it?
The credit takes the form of a refundable corporation tax credit in respect of qualifying expenditure on:
- the design,
- production; and
- testing of a digital game
The Digital Games Credit is available to digital gaming development companies that are
- resident in Ireland, or
- resident in the EEA and have a branch or agency in Ireland
The rate of the credit is 32% of eligible expenditure. This is capped at a limit of €25m per project. A minimum project spend of €100,000 also applies.
Qualification
There are a number of requirements that must be satisfied in order to qualify for the credit, including:
- Nature of the game;
- Qualifying expenditure;
- Certification;
- Certification types and claim period;
Nature of game
The game must be one which integrates digital technology, can be published on an electronic medium, is interactive/built on an interactive software and incorporates as least three of the following elements:
- text;
- sound;
- still images; and
- animated images
The digital game should not be produced solely / mainly as part of a promotional campaign or be used as advertising for a specific product.
Further, the game must not be produced solely or mainly as a game of skill or chance for a prize comprising money or money's worth.
Qualifying expenditure
There is a requirement for expenditure to be incurred directly by the digital games development company on the design, production and testing of a digital game.
The categories of expenditure that may qualify for relief include:
- employee related costs;
- capital costs of assets used for the development of the game;
- costs of renting or leasing equipment;
- costs of consumable items, software, copyright and other intellectual property rights; and
- sub-contractor payments subject to a €2m limit.
Certification
A company must obtain certification from the Minister for Tourism, Culture, Arts, Gaeltacht, Sport and Media.
When deciding whether it will grant such a certificate then the Minister will have regard to a matrix of cultural requirements. A points system is applied in assessing the merits of the application.
Under the rules, there is a provision for the issuing of:
- an interim certificate (issued to companies still in the process of game development); or
- final certificate (issued to companies that have completed development of the game).
Making a claim for the Digital Games Credit
Where a company has been issued with an interim certificate then the credit can be claimed within twelve months following the end of the accounting period in which the expenditure was incurred.
Alternatively, where a company has been issued with a final certificate, the company may make a final claim after deducting any amounts that have already been received under an interim certificate.
Process for claiming relief
The Digital Games Credit is first offset against any corporation tax liability company for the relevant accounting period.
However, where there is no corporation tax liability or if the credit takes the company into a loss-making position, then the Company may make a claim for a cash refund.
If you have any queries about the Digital Games Credit or Irish tax matters more generally, then please do not hesitate to get in touch.
The content of this article is provided for educational and information purposes only. It is not intended, and should not be construed, as tax or legal advice. We recommend you seek formal tax and legal advice before taking, or refraining from, any action based on the contents of this article