What is the EIIS scheme?
So, you’ve just incorporated a new company (or thinking about it) and have heard about a few tax incentives schemes which can help fund the company. The EIIS scheme is one such scheme and we will go into detail on who can claim it, how much can be claimed and how to go about claiming.
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EIIS stands for “Employment & Investment Incentive Scheme”. It is a tax refund scheme for tax-payers who invest their money in limited companies. Ultimately investors could get a refund of up to 41% of their investment!
It’s a great scheme because it means that if you find an investor for your company, you can get them to invest more funds if they are allowed to recoup tax paid in previous years in order to fund your company – it’s a no-brainer win-win situation!
We’re going to address the following points:
- General overview of the scheme
- Conditions the Investor needs to meet to qualify for the scheme
- Conditions the Company needs to meet to qualify for the scheme
- Conditions the Investment needs to meet
- The application process
- How much you can get refunded
- What “qualifying trading activities” are
- How Research & Development is defined
EIIS in a nutshell:
- 100% of the investment is claimable in Year 1 (it used to be 30/40 in the first year and 10/40 in the last year)
- Tax Relief is up to 40% of tax paid in current year
- Max claim per company: €15m lifetime & €5m in any 12-month period
- Max claim per investor per year: €250k (was €150k)
- Minimum investment is €250
- Conditions for investor, company, investment and shares issued must be met
How does the Investor qualify for the scheme?
Here’s some things the Investor can’t do or must do:
- They must be resident in Ireland current tax year (or has income chargeable to Irish tax)
- They have to subscribing to shares personally (or through a nominee or designated investment fund)
- They cannot be “connected” to the company. That means:
- they are not “associated” with company (e.g. not the largest supplier/customer)
- they don’t own >30% of the share capital
- they don’t control >50% company
- Not a “Connected Deal” (e.g. you invest in someone else’s company and they invest in yours, with the only aim to take advantage of the scheme)
- If they are an Employee/Director – they are not paid excessively (e.g. a few month’s before the investment, they were paid an unusually high amount of money)
How does the Company qualify for the scheme?
The company also needs to meet certain conditions, namely:
- Trading for at least 4 months (or at least 30% of investment already spent on qualifying R&D) and less than 7 years
- Not a quoted company (i.e. shares not traded on a stock exchange)
- Must be a Micro, Small or Medium-sized company*
- Not a “firm in difficulty” (e.g. insolvent and unable to pay suppliers)
- Is not controlled by nor controls another company (except qualifying subsidiaries)
- Incorporated and resident in Ireland/EEA
- Above conditions will continue to be met for 4 years
*the term is defined by the Companies Act and means the company has turnover of less than €20m, net assets less than €10m and does not employ more than 250 people.
If you are using the scheme for follow on investment, this needs to have been submitted and foreseen in the first business plan submitted to Revenue.
If your company is trading for more than 7 years, you can still apply for the scheme if you are using the investment to expand into a new geographical market or market segment.
The following companies or company activities are restricted however:
- Financing activities (e.g. providing loans, etc)
- Investing activities (e.g. dealing in commodities, shares, securities)
- Providing professional services (e.g. solicitors, doctors, architects, accountants etc.)
- Companies developing land
- Companies in the forestry, coal, steel and shipbuilding industries
- Film production
- Once of speculative transactions (e.g. holding company)
How does the Investment need to be used?
If the Company is trading the funds must be used to carry on a “qualifying trade” – if the Company is pre-trading however, the funds must be used on qualifying R&D expenditure.
You can also use funds for: stock, light & heat, fixtures & fittings, plant & machinery, purchase/extension of premises.
If investing in a subsidiary, the subsidiary must issue new ordinary shares to the parent company.
Regarding the shares for the investment, the Company must:
- must issue new ordinary share capital
- the shares cannot carry preferential rights
- the shares must be held for a least 4 years from date of issue
- Director Loans cannot be converted into shares
How much can I get refunded to the Investor?
That all depends on how much you’ve invested and how much PAYE you’ve paid. At its most simplistic level, in theory, an Investor who invests €100k could get up to €40k refunded to them.
Great! How do I apply for the scheme?
Here’s the step-by-step process for applying for the scheme:
1. Company sends Form EII Outline to Revenue (and supporting documents)
2. Revenue accepts the proposal
3. Company sends Form EII 1 for each share issue to Revenue
4. Revenue approves and issues the Company with Form EII 2 and Form EII3.
5. Company keeps Form EII 2 (for own records)
6. Company gives Form EII 3 to Investor
7. Investor uses Form EII 3 as support for claiming relief during self-assessment
NB: ALL FORMS MUST BE COMPLETED BY COMPANY SECRETARY
Revenue will be looking for the following supporting documents, so make sure you have them ready before applying:
- Company Tax Clearance Certificate
- Certificate of Incorporation
- Company Tax Number
- First sales invoice (if there are sales) and description of sale
- Management Accounts or Financial Statements
- Business Plan
- Financial Projections
- Description of planned use of investment funds
- Shareholder Agreements for all investors
- Names, Nationalities and PPSN for all company directors
- Bank Statements for current and previous years
CONCLUSION
So there you have it – hopefully the EIIS scheme is a little clearer now and your Investors will be able to qualify and get a refund of tax!
Of course, if you are still boggled by it or just want to make sure it is done right, book a free Discovery Call with us today.
Disclaimer: This guide is for informational purposes only and contains a general summary of taxes in Ireland and is not a complete or definitive statement of specific tax obligations that may arise. Specific accounting and tax advice should always be obtained where appropriate.
Warning: If you invest in this product you may lose some or all of the money you invest. This marketing information has been provided for discussion purposes only. It is not advice and does not take into account the investment needs and objectives, financial position, risk attitude, liquidity needs, capital security needs and / or capacity for loss of any particular person. It should not be relied upon to make investment decisions.
