The surge in investors seeking EIIS opportunities is due to the broadening of the scope of the scheme and the wider economic recovery
“The EII Scheme provides an incentive for Business Angels and other investors to invest in SMEs to create and retain jobs,” said Garrett Murray, manager policy and planning at Enterprise Ireland.
“Business Angels are a critically important source of funding for Enterprise Ireland high potential start-ups and SMEs,” said Murray.
“Enterprise Ireland invests alongside a large number of Business Angels and private investors and a number of these investors avail of the EII scheme supporting innovative and ambitious Irish companies.”
Murray said a large number of Enterprise Ireland client companies, across a range of sectors, had attracted investment under the EII scheme.
“The Revenue Commissioners periodically update a list of those companies that have investments certified under the EII Scheme.
“The data suggests that in 2015 and the first half of 2016, more than 400 companies had investments certified under the EII scheme. Many of these companies are Enterprise Ireland or Local Enterprise Office (LEO) clients,” he said.
Murray said a number of factors were important for the development of an innovative entrepreneurial ecosystem and encouraging non-institutional private investment, in line with international best practice, was a critical ingredient.
“We need to continue to periodically review the effectiveness of this and other schemes to ensure we remain internationally competitive,” he said.
The growing interest from investors in EIIS projects is a strong sign of Ireland’s economic recovery, according to Mary McKeogh, tax partner with HLB McKeogh Gallagher Ryan.
“The nature of tax incentive investment schemes means they only work if there are sufficient tax payers with tax liabilities at the higher marginal rates who also have funds available to invest in the scheme,” said McKeogh.
“The level of investment amount by investors varies from €5,000 to the maximum €150,000. This highlights that the scheme is attractive to a wide variety of investors/tax payers.”
McKeogh has been fundraising for EIIS projects since the scheme was introduced in 2011, and previously fundraised for BES projects.
“The first EIIS windfarm we fundraised for in 2012 has successfully exited at the full cap. In the past two years, we have noticed a marked increase in interest from clients and investors,” she said.
“We are expecting to see continued growth in the area of EIIS investment due to people’s requirement for tax relief and the restrictions on bank lending in the SME sector.”
She said the changes introduced to the scheme last year had broadened the scope of EIIS fundraising.
“Certain nursing home operations became qualifying trades, and medium- sized companies beyond the startup phase and based in non-assisted areas of the state also qualified for the scheme, both for share issue dated October 2015,” said McKeogh.
“The limits on funds raised under the scheme were increased from €2.5 million to €5 million in any 12-month period and from €10 million to €15 million over the lifetime of the business.” Companies are now required to have their tax affairs fully up to date in order to qualify.
“The scheme was also brought in line with the EU’s General Block Exemption Regulations (GBER) on state aid,” said McKeogh.
“This was possibly the most far-reaching change as, in certain cases, businesses trading for more than seven years are now excluded from the scheme.”
The increased uptake by investors saw a surge in investment in the Davy EII Tax Relief Fund 2015, according to Sinéad Heaney, partner at BDO.
The 2015 fund raised €12.3 million, more than double the amount invested in the previous year’s fund.
“Investors are attracted by the opportunity to invest in a diversified fund which will spread their investment over a portfolio of established SMEs,” said Heaney.
“Our fund focuses on indigenous Irish companies with future growth potential and we invest in a range of industries to help reduce exposure to any one sector,” she said.
“The change in the EII scheme rules last year saw nursing homes qualifying for investment from October 2015.
“The Davy EII Tax Relief Fund 2015 completed the first nursing home investment in Ireland in July of this year and we are in discussion in relation to a second.