The Government has signed into legislation a new tax credit for the digital games sector. Ian Collins and Arek Rojek outline what this will mean for the gaming industry in Ireland
On 21 November, the Irish Government, on the back of European Commission approval, officially signed into legislation a tax credit for the digital games sector. This offers a refundable corporation tax credit to digital games development companies for expenditure on the design, production and testing of a digital game.
Originally announced in Budget 2022, the new tax credit represents a fantastic opportunity for Ireland to become a powerhouse in the global games development industry. It follows the recent introduction of several university courses geared towards video game development, and clearly sets Ireland’s ambition of becoming a hub for the digital gaming industry in a sector estimated to be worth up to €260 billion.
This incentive will be available at a rate of 32 percent of eligible expenditure ranging from €100,000 to €25 million per project. It will also require the game to meet a cultural test based on the contribution its development is expected to make to the promotion and expression of Irish and European culture. These parameters are similar to those already applying to the Irish film tax credit.
Video games in Ireland have a vibrant history, and a significant number of indigenous and multinational gaming companies already have operations in the country. When you combine this incentive with the Irish talent in the audio and visual arts, you have a recipe for success. Many other jurisdictions have introduced incentives in this sector, so the launch of the digital games tax credit in Ireland is also very timely.
The regulations will now be signed by Revenue, allowing digital games development companies to apply for an interim certificate from the Department of Tourism, Culture, Arts, Gaeltacht, Sport and Media for a qualifying digital game. It is expected that certificate holders will then be able to apply for refunds under the scheme from 1 January 2023.
The incentive provides a great opportunity for attracting, promoting and growing the digital games industry in Ireland. Only time will tell if the regime will be successful, however—and it should be noted that, while the tax credit is very welcome, some aspects could potentially slow the pace of growth in the digital games sector.
Factors such as the proportion of development carried out in Ireland versus overseas, the rules governing the cultural test and the level of documentation required, will all no doubt play a pivotal role in determining how successful this regime will be.
Guidance in this area will be very important to ensure the level of certainty needed to incentivise investors to choose Ireland as their place of business, as well as a healthy number of smaller companies looking to progress into the premium AAA games sector in cooperation with well-established game developers and publishers.
Ian Collins is Partner/Principal, Business Tax Advisory (BTA) and Arek Rojek is Manager, Business Tax Advisory (BTA) at EY Ireland