The Employment and Investment Incentive Scheme [EIIS], is a tax relief incentive scheme which enables investors to deduct the cost of their qualifying investment from their total income for income tax purposes.
The Scheme was introduced under the Finance Act, 2011 to replace the former Business Expansion Scheme [BES]. The Finance Act, 2013 introduced two changes, extending the scope to hotels, guest houses and self-catering establishments.
There are two ways to raise EIIS funding. A private placing is suitable for early stage or start-up companies who can raise funds from family and friends who can receive up to 41% tax relief. A Designated Investment Fund is suitable for more established companies with a strong trading record and a commercial focus and for raising funds from outside investors.
Tax relief is available in two tranches; 30% in year one with a further 11% relief after three years, subject to additional criteria being met. The investee company must prove to have increased employment levels or to have met pre-defined R & D expenditure requirements.
Some key risks investors should consider before investing are:
It is a medium to long term investment in unquoted companies, with no early exit mechanism and investors should not expect to release any investment capital within a 3-year period.
Investors are exposed to the performance of the investee companies and may lose some or all of their invested capital.
Investors must have an income tax liability to the value of the relief being claimed in a given tax year and the maximum investment on which tax relief can be claimed is €150,000 in any tax year.
EIIS investments made after 15th October 2013 and before 1st January 2017 will not be subject to the High Earners restriction.
The investor is responsible for submitting their own claim for tax relief to Revenue; they must not be connected to the investee company at any time from two years before the issuance of shares qualifying for relief and for three years afterwards.
Investors should seek competent advice before investing in EII Schemes.