Employment & Investment Incentive (EII) Scheme

Subject to certain conditions, relief from income tax is available by way of a deduction from income to individuals who invest long-term risk capital in ordinary shares of unquoted qualifying companies.  The scheme allows an individual investor to obtain income tax relief on investments up to a maximum of €150,000 per annum in each tax year up to 2013. Section 22 of the Finance Act 2013 provided for the extension of the scheme to December 2020. However this is subject to a commencement order by the Minister for Finance.

Relief is initially available to an individual at up to 30% of their investment. Up to a further 11% tax relief will be available where it has been proven that employment levels have increased at the company at the end of the holding period (3 years) or where evidence is provided that the company used the capital raised for expenditure on research and development.

An investor who cannot obtain relief on all their investment in a year of assessment, either because their investment exceeds the maximum of €150,000 or their income in that year is insufficient to absorb all of it, can carry forward the unrelieved amount to following years, subject to the normal limit of €150,000 on the amount of investment that can be relieved in any one year.

This scheme is available to the majority of small and medium sized trading companies. The company must be resident in the State or is resident in the European Economic Area with an establishment in the State carrying out qualifying activities. The company must also be unquoted, i.e. it must not be listed on the official list of a stock exchange. The shares in the qualifying company must be held and certain conditions satisfied in relation to the investor for a period of three years. If the shares are sold within this period, some or all of the relief may be lost.

To qualify for the relief, investors must purchase new ordinary share capital in the company. Shares must carry no preferential rights. Normally, the minimum investment by an individual in any one company which qualifies is €250. There must be no condition which would eliminate the risk to the investor.

Relief can be claimed immediately in the case of established companies or after four months' trading in the case of new companies. If the company is not trading at the time the shares are issued, relief cannot be claimed until the company: commences trading. It must however commence trading within two years of the share issue, or expend at least 30% of the funds raised under the scheme on research and development activities which are connected with and undertaken with a view to carrying on relevant trading activities.

A claim for relief must be made within 2 years of the end of the year of assessment in which the shares are issued. Relief is given as a deduction from total income before tax credits and allowances.

The EII scheme is a complex piece of legislation, which will require a complete review with regards to your own personal situation. Should you wish to discuss the availability of this scheme further, please do not hesitate to contact RDA’s tax manager, George Skelton CTA, ACA, MBA.