Tax credit for the development of Digital Games announced

In a bid to boost the domestic digital games development sector and Ireland's share of the global digital games industry, the Minister for Finance, Paschal Donohoe T.D. and Minister for Tourism, Culture, Arts, Gaeltacht, Sports and Media, Catherine Martin T.D., recently formally launched the Digital Games Tax Credit. This measure was provided for in Finance Act 2021 with a new section 481A inserted into the Taxes Consolidation Act, 1997 subject to commencement order and EU State Aid approval. Following approval by the European Commission, a commencement order has now been passed with the measure officially signed into tax legislation and the expectation that qualifying certificate holders are able to avail of the relief from 1 January 2023.

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 and is available to digital gaming development companies that are resident in Ireland, or who are EEA resident and operate in Ireland through a branch or agency at the time of making a claim. The credit is available at a rate of 32% of eligible expenditure up to a maximum limit of €25m per project with a per project minimum spend requirement of €100,000. To qualify for the credit:

  1. Nature of game: to qualify as a 'digital 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: (a) text; (b) sound; (c) still images; and (iv) animated images. The game should not be produced solely or mainly as part of a promotional campaign or advertising for a specific product or undertaking and 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.
  2. Qualifying expenditure: to qualify, the expenditure should be incurred directly by the digital games development company on the design, production and testing of a digital game. The categories of expenditure qualifying for relief include: (i) employee related costs subject to certain parameters around standard remuneration policy and industry rates; (ii) capital costs of assets used for the development of the game; (iii) costs of renting or leasing equipment; (iv) costs of consumable items, software, copyright and other intellectual property rights; and (v) sub-contractor payments subject to a €2m limit. Expenditure on initial concept design, maintenance / debugging and sub-contractor payments exceeding €2m are specifically excluded.
  3. Certification: to avail of the measure a company must obtain certification from the Minister for Tourism, Culture, Arts, Gaeltacht, Sport and Media. In determining whether to grant certification regard is had to a matrix of cultural requirements with a points system applied in determining application success. Amongst other matters regard is had to: (i) the proportion of activity carried out in Ireland / EEA and the proportion of Irish/EEA nationals/residents involved; (ii) the Irish/European cultural relevance; (iii) the use of materials or music created in Ireland/Europe and by Irish/EEA nationals/residents; (iv) educational content; and (v) the extent to which the game promotes eco sustainability and minimisation of climate change. Games must also adhere to the PEGI Code of Conduct, and games that promote violence, hatred or cruelty are excluded.
  4. Certification types and claim period: the measure provides for the provision 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). In terms of use of the credit, where a company has been issued with an interim certificate, the credit can be claimed within twelve months of the end of the accounting period in which the expenditure is incurred. Where a company has been issued with a final certificate, the company may make a final claim less any amounts already received under an interim certificate.
  5. Process for claiming relief: the credit is first used to offset any corporation tax liability of the company for the relevant accounting period. Where there is no corporation tax liability or if the credit exceeds that liability, then a claim can be made to Revenue in the form of a cash refund.
  6. Documentation: similar to other credit provisions, there are documentation and record keeping requirements – in relation to the nature of the expenditure and why it is qualifying and the timeline for when that expenditure is incurred – to ensure Revenue can validate / audit application of the credit.

The introduction of the Digital Games Tax Credit is a welcome addition to Ireland's overall offering from a tax perspective and should serve the purpose of attracting more industry players to Ireland.

For more information on this topic please contact a member of the Tax team.

Date published: 2 December 2022