THE TECH SECTOR is being stymied by “unnecessary” compliance costs, which is harming innovation and growth, a new report has said.

Some technology companies are spending an average of 7% of their annual EU-wide turnover navigating “resolvable frictions”, the report by Technology Ireland and Frontier Economics found.

Of the 21 companies who responded to their survey, 85% said that compliance barriers have directly impacted their capacity to innovate.

Una Fitzpatrick, Director of Technology Ireland said: “Well-defined legislation is essential to build trust, but today’s regulatory frictions are overshadowing many opportunities, while driving up costs without improving compliance outcomes.

“Every single euro an Irish company is forced to spend on navigating fragmented, unclear, or overlapping administrative hurdles is a euro directly diverted away from vital research, development, and scaling.”

Over a third of technology firms saw their EU-wide digital compliance costs surge by more than 50% since 2023.

Nearly 90% of firms said that costs would drop if overlapping EU rules, unclear guidelines, and member-state legal fragmentation were resolved. 

On average, 12% of companies’ total EU workforces are also diverted to compliance activities, which leads to delayed product launches and fewer product features.

Examples of regulatory friction include duplicative reporting obligations, which was mentioned by several survey respondents.

Several firms, both smaller and larger, said they were required to submit similar sets of information through separate templates and to different authorities.

They said, for example, that the same data security incident can trigger separate reporting requirements to ComReg and to the Data Protection Commission (DPC) under the GDPR.

Concerns were also raised regarding unclear legislation and lack of guidance in interpreting laws. Some firms also felt that Ireland was comparatively slower than other EU Member States to transpose EU directives into domestic law, with implementation timelines occasionally being changed at short notice, leading to planning delays.

An example was given that Ireland was one of 19 Member States that did not meet the October 2024 deadline to transpose the NIS2 Directive regarding cybersecurity into national law.

The digital sector employs one in every eight workers in Ireland, which includes tech companies, but also other businesses such as digital marketing and e-commerce.

The total export cost of the sector is €211.7 billion – which constitutes 29.4% of Ireland’s total exports. 

Fitzpatrick said that Ireland take the opportunity of holding the Presidency of the Council of the EU to leverage its “honest broker status” and “facilitate meaningful discussions around better regulation”.

“When compliance costs skyrocket in this manner, the primary casualty is the freedom to innovate,” she said.

“Instead of treating regulation and innovation as opposing forces to be balanced, the goal should be to leverage smart regulation as an enabler of a true Digital Single Market.”