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Changes to the Employment and Investment Incentive Scheme in Budget 2016

Changes have been introduced to the Employment and Investment Incentive Scheme (“EIIS”) in section 16 of the Finance Bill 2015 which will no doubt be welcomed by investors and businesses alike.  The relevant changes apply to shares issued in an EIIS qualifying company to an investor on or after 13th October 2015.

The EIIS provides for income tax relief for investors of up to 41% of their investment to a limit of €150,000 each year up to 2020 in qualifying companies once certain conditions are met by both parties.

The relief is given by way of a deduction from the total income of the investor.  This means that the qualifying amount of the investment is taken out of the tax computation entirely (save for the universal social charge computation).  The qualifying amount of investment will either be 30/41 or 11/41 of the investment (see below) or an amount of unused relief carried forward from previous years.  Most investors are taxed at the higher rate of tax, currently being 41%. Accordingly the tax or monetary saving to an investor purchasing shares from an EIIS qualifying company rather than a non-EIIS qualifying company can be as much as 41% of the amount invested.

There is no tax advantage to qualifying companies but securing EIIS status may enhance their ability to attract external funding.

The relief is granted to investors in two tranches: the first tranche is a guaranteed relief of 30/41 of the amount invested and may be claimed by the investor in the first two years after investment is made however the second tranche being 11/41 of the amount invested is conditional and may be only claimed once certain targets have been achieved by the qualifying company. For instance prior to the Finance Bill 2015 the targets were the following:-

  1. That the number of employees had increased and the average wage of employees had not been reduced; or
  2. The qualifying company had increased its expenditure on research and development.

Target no.1. above has been tweaked by the Finance Bill 2015 to be an increase in staff numbers, by a minimum of one member of staff, and an increase in total wages by a minimum of the wages of one member of staff.

The EIIS has now been extended to include companies engaged in nursing home and international financial services trades.  In addition medium sized[i] enterprises already engaged in a trade and having a registered office in “non-assisted areas” will be eligible for the relief.

In brief, the following amendments were introduced to the EIIS by Finance Bill 2015:-

  1. Micro[ii], Small[iii] and Medium Enterprises at any stage of development in any part of the State may now qualify for EIIS.
  2. The limits on the amounts that can be raised by companies have increased from.
    • €2,500,000 to €5,000,000 in any 12 month period and
    • €10,000,000 to €15,000,000 in the lifetime of the company.
  3. The minimum period for the holding of shares in an EIIS company, and for the company to remain a qualifying company for EIIS, has been increased from 3 to 4 years
  4. A qualifying company must qualify for a Tax Clearance Certificate at the time of applying to Revenue for EIIS status.
  5. Internationally traded financial services are now considered to be a qualifying trade under EIIS subject to certification by Enterprise Ireland.
  6. Nursing homes and nursing homes which incorporate residential care units are now considered to be a qualifying trade under EIIS. Furthermore monies raised under EIIS can be used to expand the capacity of the Nursing Homes or Residential Care Units.
  7. Qualification criteria for the second tranche of relief (i.e. the further 11/41 of the investment) has been changed from an increase in staff numbers and average wages, to an increase in staff numbers, by a minimum of one member of staff, and an increase in total wages by a minimum of the wages of one member of staff.
  8. The EIIS now operates under the conditions set out in the EU Commission’s General Block Exemption Regulations on State Aid (2014).  This is a set of 43 exemptions from the requirement of prior notification and commission approval for State Aid purposes.

Further details of these changes can been viewed in section 16 of the Finance Bill 2015 (http://www.finance.gov.ie/sites/default/files/Finance%20Bill%202015%20As%20Initiated.pdf)

 

(c) October 2015, Deirdre Farrell, solicitor and AITI Chartered Tax Adviser, Amorys Solicitors, Suite 10, The Mall, Sandyford, Dublin 18



[i] A medium sized company is defined in the relevant legislation as a company with less than 250 employees and annual turnover not exceeding €50m or an annual balance sheet not exceeding €43 million

[ii] A Micro sized company is a company with less than 10 employees and an annual turnover not exceeding €2 million

[iii] A small sized company is defined in the relevant legislation as having less than 10 employees and a turnover not exceeding €10 million.