The most recent increases to the EIIS scheme were a step in the right direction. This is a very important tax relief scheme for investors and one that many companies use to raise much needed seed capital. Over the last number of years O’KellySutton have advised and assisted several companies in their quest to raise the necessary funds required to deliver on their strategy.
The Employment and Investment Incentive Scheme (EIIS) is the replacement scheme for the old Business Expansion Scheme (BES). The scheme is available to the majority of small and medium sized trading companies, most of whom qualify, however certain activities are excluded.
The concept behind the scheme is that investors make investments in a company and get tax relief. The reason for the tax relief is to encourage investment in early stage start-ups which by their nature carry a reasonably high level of risk. There’s normally a fixed return on the investment of between 10% and 20% (excluding tax relief) at the end of year 4 or 5. Tax relief is allowed at the top rate of tax at 40% subject to the taxpayer actually paying the top rate. The relief is split 30% in year 1 and 10% in year 4. Investors can invest in stand alone projects or through EIIS funds put together by Brokers.
A qualifying company can raise a lifetime maximum of €15m with an annual limit of €5m.
An individual may invest up to €150,000 per annum in this scheme. The maximum limit applies separately to both spouses, provided that they both have sufficient income in their own right. Where full relief cannot be availed of in a tax year, the excess can be carried forward to subsequent years.
The lifetime limit that a company can raise is €15m with the annual amount being €5m.
The period for which shares need to be held has been increased from three years to four years. A claw-back of relief will arise if shares are disposed of within 4 years.
The scheme has been extended to 31st December 2020
The restriction that applies to High Earners removal was made permanent with effect from 1 January 2017.
Share must be held in the company for a period of 4 years from date of issue or from date company commences to trade if later.
- A connected party may not invest however investors may invest in his/her own company where the amounts subscribed for do not exceed €500,000 at the time of share issue.
- Employees and directors of the investee company may invest provided they are not connected parties as defined or are not receiving payments from the company other than reasonable pay and expenses.
- Connected parties include those who control the company or own more than 30%, or are associates/partners of the company.
- Financing activities
- Dealing in or developing land
- Operating or managing nursing homes and hotels
- Extension of a nursing home or residential care units associated with a nursing home owned by a company.
- Professional service companies
The operation of hotels, guest houses and self-catering accommodation is a “qualifying activity” where the conditions of the Tourist Traffic Act are met.
Capital Gains Tax
- For the purpose of computing an individual’s liability to CGT the purchase prices of the shares will be considered to be the cost before deduction of the tax relief.
- In general losses on the sale of shares will not give rise to an allowable loss fort CGT purposes.
For assistance in applying for EIIS approval, develop a prospectus or fund-raising contact Patrick Sutton firstname.lastname@example.org