Income Tax Relief: Employment Investment Incentive Scheme

In part one of our Income Tax Relief series, our Managing Director, Gerard Kiernan, provides some insight into the EII scheme and how companies can qualify for the incentive.

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As the leading accountancy provider for self-employed independent professionals, we are always seeking to find more legitimate ways to help you to reduce your tax liability, whether it’s through a limited company or personally as an individual.

In this piece, we discuss the Employment Investment Incentive (EII) which is a relief that aims to encourage individuals to provide equity based finance to trading companies once certain criteria is met.

What is all about?

The Employment Investment Incentive is a tax break previously known as the BES (Business Expansion Scheme).
In recent years, the BES was revised and remodelled with an update in 2020 making it much more attractive and it was rebranded to the EII.
The purpose of the incentive is to attract investment in qualifying companies that provide employment, however, the company you invest in must meet certain qualifying requirements and also make a declaration to Revenue that the conditions outlined have been fulfilled.

How do I get involved?

From the 1st of January 2020, an individual can claim tax relief on investment of up to €250,000 in a qualifying company.

The main criteria include:

  • the company qualifies for the investment
  • you hold the shares for 4 years

It is also worth noting that no relief is available against PRSI or USC, therefore, an investment of €100,000 would avail of up to €40,000 tax relief for an individual in the higher tax bracket.

Should you choose to hold the shares for more than 7 years, you can invest up to €500,000, thus making it even more attractive in tax efficiency.

To make the claim, you will receive a valid SOQ (Statement of Qualification) or Managers Certificate from the company that you have invested in and you can make the claim through your annual Income Tax Return, less commonly known as the Form 11.

For Revenue to issue this SOQ to the company receiving investment, they must have spent 30% of the raised funds on qualifying expenditure, prior to Revenue issuing them with the certificate.
Should you prefer not to invest directly in a company, you may do so through a DIF (Designated Investment Fund). The DIF should be approved by Revenue and you should receive the certificate to claim your tax relief.

What companies qualify?

For a company to qualify for investment they must be an SME (Small or Medium Enterprise) with turnover of less than €50m.
There are also certain trades, industries and sectors that are excluded, such as financial services, professional services and once off trades.

From the invested company’s part, it is also worth noting that there are certain conditions that must be met by the company during the period. Failure to comply with these conditions can result in a clawback of ¼ of the tax relief.

For more details of the scheme, you can visit the Revenue website directly here

As always, we strongly advise that you do your due diligence and take financial advice before investing in one of these schemes, whilst the tax relief is generous, the investment must also add up for it to be considered a wise investment.
We would be delighted to help you should you have any queries on the above with the assistance of our financial planning partners, Rockwell Financial.

If you would like to hear more information, please reach out to your account manager, or alternatively, if you are not yet a client of Icon Accounting, get in touch via info@iconaccounting.ie or call 01-8077106.

Author

Gerard Kiernan

Director

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