Ireland's Employment Investment Incentive is set to be improved, with the Irish Government recently calling for input from stakeholders on potential enhancements. The measure grants income tax relief to individual investors who make multi-year investments in trading companies.
The EII is intended to encourage individuals to provide equity-based finance to trading companies, in exchange for a reduction in their liability to income tax. It does not affect liability to Pay Related Social Insurance (PRSI) or Universal Social Charge (USC).
Under the present scheme, investors who make investments in certain corporate trades can receive tax relief of up to 40% of that investment.
This is the second time in recent years that the Irish Government is looking to improve the incentive. For investments made prior to October 9, 2019, investors could claim only three-quarters of the value of the tax relief in the first year and the remainder after holding that investment for four years, providing a number of conditions were met. Now, investors may claim full relief in the first year of investment.
Further, previously, the maximum investment against which investors could claim relief had been €150,000 per year. From 2020 onwards, that cap has been increased to €250,000, providing the investor holds the company's shares for at least four years, or €500,000, if the investor holds the company's shares for at least seven.
Relief under the EII is available to individuals investing in unquoted micro, small, and medium-sized trading companies. Typically, 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.
Now, the Irish Finance Department has released proposals to enhance the attractiveness of the measure.
Launching the consultation, Ireland's Finance Minister, Paschal Donohoe, said reform of the EII was intended to respond to how "the pandemic has affected private investor confidence", to boost "the flow of available private equity investment into Irish companies." Against that background, his Department is seeking input on how the EII can be improved.
Specifically, the Department is seeking feedback, until February 12, 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 Renewable Energy Support Scheme (RESS).