The Finance Act, 2011 set out a new Employment and Investment Incentive Scheme [EIIS] to replace the Business Expansion Scheme [BES]. Its purpose is to promote job creation and to encourage companies to carry out research and development (R&D) activities.  The new scheme widens the scope of trades that can qualify for the relief.

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 and it is one of the few sources of total income tax relief. The minimum investment that a qualifying individual can make is €250 and the maximum amount is €150,000 per qualifying individual per year. The investment term is 3 years compared to 5 years for the BES.

Relief is available initially at 30%, with a further 11% tax relief available after 3 years, subject to the investee company proving they have increased employment levels or have met pre-defined R&D expenditure requirements.

The investment must be made in unquoted qualifying companies and the investee companies must have:

  • Experienced and capable management team
  • Recognised market for products/services
  • Growth potential
  • Clear, defined market strategy
  • Likelihood of realisation of investment after 3 year period

Investors must have an income tax liability to the value of the relief being claimed in a given tax year. They should seek competent advice on the tax efficiency of investing in EII schemes and they should determine the suitability of the investment, based on their own personal circumstances.

Each investor must submit their own claim for tax relief and they must not be connected to an investee company for a two year period before or three year period after issuance of shares qualifying for the relief.

EIIS is a medium-to-long term investment in unquoted companies, with no early exit mechanism and investors should not expect access to their investment capital within a 3 year period.

Investors are exposed to the performance of the investee companies and as such may lose some/all of their invested capital.

The value of the investment may go down as well as up.