Business boost with raised EIIS tax break limits
By Margaret O’Brien
The Employment and Investment Incentive Scheme (EIIS) is a government initiative that aims to increase availability of investment finance for business.
In a bid to bolster such investment, changes to the rules were announced in Budget 2015 and Budget 2016. These include an increase in the limit on the amounts that can be raised by companies from €2.5 million to €5 million in any 12-month period and €10 million to €15 million in the lifetime of the company.
The scheme has also been extended to include businesses in all geographical locations, whereas previously Dublin, Kildare, Wicklow, Meath and Cork city were excluded.
The minimum period for the holding of shares in an EII company, and for the company to remain a qualifying company for EIIS, has been increased from three years to four years.
Sinead Heaney, partner, BDO, welcomes the changes and said that whether or not the driver is the change in rules, EIIS activity is buoyant this year.
“We are experiencing strong demand from companies with significant growth opportunities that present great investment opportunities.”
The Davy EII Tax Relief Fund 2015, run as a joint venture with BDO, is the longest-running fund.
“Our first EIIS Fund is due to realise in December and businesses included within the Fund have performed in line with expectation. Ours was the first EII fund in the market, and the fact that it is realising on time and has performed well is good news for the investors and will give confidence to prospective EIIS investors,” said Heaney.
“We have witnessed a massive appetite among investors already this year for EIIS investments. People are more confident, businesses are performing better, earnings have increased and EIIS is appealing strongly as a tax incentive, especially as almost all other tax breaks have finished.”
Among recent rule changes highlighted by Heaney as having had a positive effect, is the inclusion of nursing homes, which she sees as a solid and attractive investment opportunity.
“The fact that the scheme has been extended from three to four years is considered a more appropriate timeframe for SMEs to repay these investments and therefore the scheme is attracting more companies. Similarly, increasing the investment limit from €10 million to €15 million represents a significant change and again is resulting in more good quality companies becoming interested in raising investment funds through EIIS.”
Mary McKeogh, partner with business advisory and accountancy firm HLB McKeogh Gallagher Ryan, Limerick said that from her firm’s recent experience of completing client tax returns, she knows that many people in business are doing better than expected, and are looking for ways to shelter their income from tax.
“However, people remain a little conservative when it comes to investments, and because wind farms offer a greater degree of certainty, compared perhaps to other EIIS investments, although while still not eliminating risk, they are proving attractive.”
That’s why her firm is offering investment opportunities with two EIIS-approved wind farms.
HLB McKeogh Gallagher Ryan raised over €2 million in EIIS investment for Tullabrack wind farm, Co Clare in 2014.
“Because we were oversubscribed last year, this year we are involved in two EIIS wind farm projects, Tullabrack and Kilberehert,” McKeogh said.
“It is the firm’s experience that wind farms attract a positive response from investors because they are generally well understood. The cost of building a turbine is known from the start and there’s a fixed-term 15-year power purchase agreement in place, therefore cashflow is predictable and an exit can clearly be shown.
“Furthermore, once the wind farm has applied for a grid connection, for tax purposes the business is considered to be trading, and therefore investors don’t have a waiting period before they can claim their tax relief, as they might have with other EIIS investment opportunities,” she said.
Conor McKeon, head of corporate finance with Cantor Fitzgerald, agreed that the appetite for EIIS investment has increased significantly this year, from both companies seeking EIIS funding and from individual investors looking for EIIS investment opportunities.
“From a company perspective, EIIS funding has proved an attractive alternative source of capital in the absence of traditional bank debt funding in recent years.
“While Irish banks are beginning to service this segment of the market, they are doing so on a limited basis, hence the demand for alternative sources of finance,” he added.
A supporter of EIIS legislation, McKeon sees it as an essential support for Irish companies with high growth potential. “It will assist them to develop into long-term businesses that sustain and create employment.”
This article appeared in the print issue of the Sunday Business Post on 22 November 2015.