Improvements to be made to Ireland’s Employment Investment Incentive
Improvements are set to be made to Ireland’s Employment Investment Incentive. This comes on the back of the Government recently calling for input from stakeholders on potential enhancements. The new measure will grant income tax relief to individual investors who make multi-year investments in trading companies.
The Employment Investment Incentive’s (EII) aim is to encourage individuals to provide equity-based finance to trading companies in exchange for a reduction in their liability to income tax. It’s worth noting that it does not affect the liability to PRSI (Pay Related Social Insurance) or USC (Universal Social Charge).
Under the Current Employment Investment Incentive Scheme
Currently, under the scheme, investors who make investments in certain corporate trades can receive tax relief of up to 40% of that investment.
The Irish Government is looking to improve the incentive for the second time in recent years. Investments made before the 9th of October 2019, investors could only claim three-quarters of the value of the tax relief in the first year and the remainder after holding that investment for four years, provided conditions were met. Now, however, investors may claim full relief in the first year of investment.
Furthermore, the maximum investment against which investors could claim relief previously had been €150,000 per year. That cap has been increased to €250,000 from 2020 onwards, provided the investor holds the company’s shares for a minimum four years, or €500,000, should the investor hold the company’s shares for a minimum of seven years.
Under the EII, relief is available to individuals investing in what would be known as micro, small and medium-sized trading companies. More often than not, they may not be more than seven years old and businesses engaged in certain activities are excluded. A company can raise up to €5m through the EII in any one year and up to €15m over its lifetime.
The Irish Finance Department has released proposals recently to enhance the appeal or attractiveness of the measure.
When launching the consultation, Paschal Donohoe, Ireland’s Finance Minister, said reform of the EII was intended to respond to how
“the pandemic has affected private investor confidence”
“the flow of available private equity investment into Irish companies.”
Against this background, his department is seeking input on how the EII can be improved.
The Department is seeking feedback, until the 12th of February 2021, on:
- how enhanced support can be made available to start-ups through the EII;
- the potential of the EII to attract capital from a broader range of investors;
- And the interaction between the EII and the RESS (Renewable Energy Support Scheme).
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