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Employment and Investment Incentive Scheme

By Noone Casey

Employment and Investment Incentive Scheme

The extension of the Employment and Investment Incentive Scheme
for a further three years to 31 December 2024. The scheme will be
amended to make it more attractive to investors. This will benefit
companies in their start-up years. These amendments include
opening the scheme to a wider range of investment funds, removal
of the 30 per cent expenditure rule and subject to certain conditions
relaxing the rules around the “capital redemption window” for
investors.
It significantly broadens the scope of the scheme as many “qualifying
trade” limitations have been removed and thus is available to the
majority of SME trading companies, most of which qualify except
for:
• 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.
The lifetime limit that a company can raiseis €15m with the annual
amount being €5m. An individual may invest up to €150,000 per
annum. 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.
A clawback of relief will arise if shares are disposed of within four
years.

Tax relief for subscriptions for eligible shares has been reduced as
follows:
Year 1 relief: 30/40 of the amount invested at the marginal rate of
income tax
Year 4 relief: 10/40 of the amount invested at the marginal rate of
income tax
The company must be unquoted at the beginning of the holding
period and either resident in the State or, if resident in an EEA State
other than Ireland, it must carry on business through a branch or an
agency in the State and carry-on relevant trading activities from a
fixed place of business. A full list of the qualifying criteria can be
provided by your advisor.
Following a change in Finance Act 2017, it is no longer possible for
persons with a close connection with a company raising EII finance
to also claim EII relief themselves. However, this has been relaxed
a little in Finance Act 2018 with the introduction of a variation on the
EII called the Start-up Capital Incentive (“SCI”).
Under SCI, associates of the founder can claim relief from monies
invested in an early-stage start-up company. Unlike EII, there is a
maximum lifetime limit of €500,000 for SCI.
Prior to the significant EII changes in Finance Act 2018, there had
been difficulties getting the necessary “advance approval” from
Revenue for investments made by individuals. The changes are
largely designed to improve that particularly with the introduction of
a “self-certification” mechanism.
There have been further changes in Finance Act 2019. On 9 October
2019, full EII relief became available in the year of investment (rather
than the current 30/40 and 10/40 mentioned above). Also, since 1
January 2020, the annual investor investment limit increases to
either €250,000 (from €150,000) or, if the investor agrees to hold the
shares for at least seven years €500,000.
Amendments in the 2022 Finance Act has removed the requirement
of the 30% spend to issue the Statement of Qualification (SOQ) to
investors and the company now has up to 4 months from the end of
the year to issue the SOQ.