What Is the Employment and Investment Incentive (EII) Scheme?
The Employment and Investment Incentive Scheme is a tax relief incentive scheme which provides income tax relief to qualifying investors for investments in certain SMEs. The EII Scheme offers one of the few remaining income tax reliefs and is one of the few sources of total income tax relief.
Tax relief of 40% is available in two tranches: an initial 30% in year 1 with a further 10% when additional criteria are met in year 4.
What benefit does EII have for my business?
It is relatively easy to apply to revenue for approval under the scheme. Once approved, you can approach investors who will be attracted by the potential to realise 40% tax relief on their investment.
To qualify for the EII scheme, companies must not be listed on any stock exchange. They must have fewer than 250 staff, a turnover up to €50 million or a balance sheet total under €43 million.
Some of the other key criteria are outlined in the table below:
Is my business eligible?
The EII scheme is open to the majority of SMEs. However, the following trading activities are not eligible for the scheme:
- Adventures or concerns in the nature of trade e.g once-off or speculative transactions
- Dealing in commodities or futures in shares, securities or other financial assets
- Financing activities
- Professional service companies
- Dealing in or developing land
- Operating or managing hotels, guest houses, self-catering accommodation or comparable establishments or managing property used as a hotel, guest house, self-catering accommodation or comparable establishment
- Operating or managing nursing homes or residential care homes or managing property used as a nursing home or residential care home
- Operations carried on in the coal industry or in the steel and shipbuilding sectors
- The production of a film (within the meaning of section 481)
What’s in it for investors?
Under the scheme, a taxpayer who puts money into an approved EII investment can reduce a substantial portion of their taxable income for the year in which the investment was made. The relief is awarded as 30% in year 1 and 10% in year 4. The investor must retain the shares for a minimum of 4 years or the relief is clawed back.
The maximum investment allowed is €150,000 per year.
The potential tax savings for EII investors is illustrated in the example below:
The above example is an investment of €20,000. As mentioned earlier, an investment of up to €150,000 per investor can be made.
The application process
The process is relatively simple and can be completed in a reasonably quick timeframe.
EII Scheme Outline approval
A company may apply to Revenue for Outline Approval. This gives an indication to the company that it would be considered to be a qualifying company for the purposes of the EII scheme. If a company wishes to apply for Outline Approval, the company should submit a Form EII Outline to Revenue.
It must be stressed, however, that entitlement to EII relief is determined only when the share issue has taken place and the fact that a company may obtain Outline Approval does not guarantee the availability of EII relief.
For the initial relief of 30% of the EII investment, the company must submit a Form EII 1. A Form EII 1 is required for each share issue.
Use of the scheme to date
Most recent Revenue figures show that in the period January to 25 September 2017, 196 applicant companies had been processed, of which 31 cases had been rejected, leaving 165 accepted.
Last year, 261 companies were the recipients of investments and there were 1,768 investors.
There was a 46pc increase in investments made through EIIS last year, with a record €108m put into Irish firms, compared with €74.1m in 2015.
How Financify can help
If you are an Irish business and are considering raising finance from Irish investors then it is definitely worth applying for the EII Scheme.
We can talk you through the eligibility criteria in more detail and assist you in completing the application.
Once you have approval we can also assist you in finding investors keen to take advantage of your EII status.
Before this year, the scheme guaranteed approval turn around in one month. Due to changes in EU rules, the current backlog on processing applications is now a number of months but Revenue has committed to reducing this.
Even if you are only considering this, get in touch as it may be worthwhile to start your application in anticipation of approaching investors in the coming months.