WHAT IS IT?
The Employment and Investment Incentive Scheme (“EIIS”) is a government scheme encouraging investment in corporate trades by offering investors up to 41% tax relief against their total income. It is a revamp of the Business Expansion Scheme “BES” with a much broader application as there are far less restrictions in relation to the types of trades which now qualify for relief. It offers benefits to tax payers looking for Income Tax relief and companies looking to raise finance.
These changes had welcome consequences for the overstretched Irish Income Tax payer as it increased the type and choice of companies eligible for EIIS investment; overall making it a more attractive investment option. As with any investment decision investors must ensure they are happy with the commerciality of the investment on a standalone basis, rather than basing their choice purely on the grounds of tax relief. Many companies that did not qualify for BES now qualify for EIIS relief which gives investors a much wider choice and it also opens up another, cost-effective, funding source for many Irish companies. EIIS funding sits as an equity investment on the balance sheet which can help to strengthen a company’s case when they approach a bank for loan finance.
ROOM FOR IMPROVEMENT
The EIIS also reduced the time period for which an EIIS investor must retain their shares in a company – from five years to three years. Whilst this amendment was commendable in so far as it attempted to make the EIIS more attractive to investors the change has inadvertently made the scheme less attractive for companies. The amount of tax relief granted on a yearly basis under EIIS has been a lot lower than that previously granted under BES. In our experience this is largely due to the fact that many start-up businesses would find it difficult to generate sufficient funds to exit their investors in such a short turnaround time. This matter has been raised with the Minister for Finance for consideration in the upcoming October budget and we would hope that the holding period might, once again, be extended to five years. In our opinion this move would also benefit the investors as it should increase the commercial viability of investments.
The staggering of the timing of the claim for tax relief such that tax relief at 30% is available in the year of investment, and the remaining 11% is available after year three, once the company has proved it has created employment, has also impacted on the attractiveness of the EIIS for investors. Under the BES the investors were entitled to the full 41% in the year of investment, which was obviously more desirable.
Since the EIIS was introduced in 2012 HLB McKeogh Gallagher Ryan have successfully raised over €2m for wind farm projects. There is a strong market for such investments but tax payers expect more than a pre-packaged tax relief product – they want sound commercial investments which are well-structured with clear exit strategies run by experienced promoters. Due to high levels of demand the firm expects to promote another EIIS wind farm in 2014, details will be available shortly.
For any EIIS queries please contact Anne Hogan firstname.lastname@example.org