Investment Allowances

Pre-2011 Investment Incentives

The BES business expansion scheme relief allowed a deduction from income, up to the maximum amount in a year of €31,750. The person must subscribe for shares in a qualifying company. The relief was  extended to the end of 2013, Detailed conditions apply to the investment and to the company in which it is made.

The seed investment capital investment encourages persons to set up their own business  The relief is against income of any of the six years prior to the year in which the investment takes place. The individual must subscribe for shares in the company.  The maximum relief is €100,000. In 2007 the maximum relief was increased to €150,000

The person must acquire not less than 15% above the ordinary share capital of the seed capital company and retain it in full for two years from the date of investment. The individual must be a full-time employee or director of the new company. Not less than 75% of his income must be derived from employment, with income of no more than €25,000  from other sources, in each of the three previous years.

The person must not have been entitled to, nor to acquire more than 15% of the ordinary loan or share capital of another company, other than the seed capital company. There is an exception whereby  he may hold more that 15% of one other company provided the company’s turnover in each of the three previous accounting years did not exceed €127,000 and the company is a trading company.

The relief deems there to be a reduction in the income for previous period so as to generate a tax refund.

Film Relief

An investment in a company that produced a film may qualify for tax relief at marginal rates The maximum relief is 80% of the investment was 80% or €31,750. (now €50,000). The 80% restriction was removed in  2009. Certain conditions apply in respect of the  film production.

FA 2012 has measures aimed at encouraging compliance by qualifying companies availing of  film relief.  Revenue must become furnished with  a compliance report on completion of the film.  There is a penalty on directors and other officers if they fail to do so.

Film relief is amended by FA2 2013 so that the eligible individual qualifies for relief regardless of whether or not he is  resident.  This facilitates employment of non-EU persons so that monies can be spent on such persons and are qualified for the relief regardless of where they are resident.  An eligible relief is an individual employed by a qualifying company for the purpose of production of a qualifying film.

Section 25 provides for a withholding tax on payments made by companies qualifying for film relief in respect of payments to performing artists who are resident outside EU/EEA.  The tax is deducted at the standard rate.  The company must issue a deduction certificate and make returns electronically.  The tax deducted is not available for refunds.  Allowable expenses are not subject to the withholding tax.  The provision will commence upon making of appropriate ministerial orders

Finance Act 2023 amends the Film Tax Credit to increase the maximum value of expenditure on a qualifying film that a producer company may use for calculating the credit from €70 million to €125 million. This amendment was to be commenced at a future date, subject to EU State aid approval and is to l apply to films certified by the Minister for Tourism, Culture, Arts, Gaeltacht, Sport and Media after 1 January 2024 or after the commencement of the section, whichever is later.

Employee Investment Relief

An employee who subscribes for shares in his employer, may receive a deduction of up to €6,350. The company must be resident in the state. The share must be retained for three years, or the benefit will be withdrawn, other than where he ceases to be resident or cease to be a full-time employee. The amount of the allowances is deducted is from CGT base cost, in the sales of the shares.

BES / EIS

The Employment and Investment Incentive Scheme and Seed Capital Scheme replaced the former Business Expansion Scheme in 2011.  They are  available to a wide range of businesses but excluded hotel, accommodation and catering businesses.

FA 2011 introduced an amended business expansion scheme. It built on the existing business expansion scheme, and makes variations.

There was no limitation on qualifying trades.  It is available to small and  medium-sized trading companies.  The certification requirements for the majority of companies have been simplified. It was easier for  companies carrying on green energy activities to qualify.

The lifetime investment limit increased from €2 million to €10 million.  The annual amount that can be raised by companies is increased from €1.5 million to €2.5 million.  The period for which shares must be held is reduced from five years to three years.

The maximum tax relief for subscription for shares is reduced from 41% to 30%, recognizing the reduced holding period.  11% tax more relief may be available at the end of the holding period, provided the company has increased its number of employees since the investment was made or the company has increased its expenditure on R&D.

The seed capital scheme was varied more marginally.  It is extended to include additional types of trade.

Employment and Investment Scheme

The existing BES scheme referred to qualifying trades and qualifying trading operations.  The revised Employment and Investment Scheme  (EIS) applies to relevant trading activities.  This covers all trades except

• ventures in the nature of trades
• dealing in commodities, future shares and securities,
• certain financing activities,
• provision of services which would be close company services
• dealing in or development of land,
• occupation of woodland,
• operation of hotels, guest houses and self catering accommodation,
• operation of nursing homes, residential care homes or managing such properties,
• operations in  the coal steel or shipbuilding sector,
• film production.

Tourist traffic undertakers are included.

Relief

Relief is given to an individual who subscribes for eligible shares in a qualifying company.  The investment for the shares must be used for the purpose of raising money to be used for the purpose of relevant trading activities, or where the company has not commenced the trade, for research and development purposes. The money must contribute to the creation and maintenance of employment in the company.

30/41  of the amount deducted is given as a deduction from total income in the year in which the shares are issued.  11/41 is given as a deduction in the year of assessment in which the relevant period expires, provided that the employment criteria have been met.

Caps

The maximum investment qualifying for relief is €150,000.  The maximum amount available to the investee company is €10 million.  A maximum of €2.5 million can be raised in any year.

In the case of seed capital relief, the prohibition on the individual receiving income from non-employment sources above €25,000, is increased to €50,000.

A claim for a seed capital relief may not be made until 30% of the investment has been made in R&D or where trading activities have commenced..

FA 2012 amended the Employment and Investment Scheme which replaced the BES scheme. The amendments are necessitated by the terms of European Commission approval.

Tourism

FA 2013 removed reference to an activity constituting a tourist traffic undertaking and widens the definition to include hotels, guesthouses and self-catering accommodations.

A company undertaking a tourist traffic business must obtain approval from the National Tourism Development Authority for a three-year development and marketing plan.  It must be designed to increase tourist traffic and revenue from outside the State.  They NTDA must have  regard to guidelines published by the Minister for Finance and Tourism, Culture and Sports.

2014 Changes

The Income Tax Relief for Investment in Corporate Trades, Employment and Investment Incentive and Seed Capital Scheme were amended by Finance Act 2014.  The relevant period during which the qualifying company must satisfy conditions is the date from which shares are issued until four years afterwards or four years after the date it commenced relevant trading activity.

The minimum holding period was increased from three to four years.  The maximum amount of finance that may be raised is increased from €2.5 million annually to €5 million annually.  The lifetime maximum is increased from €10 million to €15 million.

The Scheme is expanded to include medium-sized enterprises in non-assisted areas such as Dublin and Cork, the  management and operation of nursing homes and internationally traded financial services subject to terms and conditions.

A company whose relevant trading activities include international trading are not qualifying unless they receive a certificate from Enterprise Ireland to the effect that it undertakes certain types of trade and activities specified under the Industrial Development Services Industries Order.

Claims for Seed Capital Relief and EEIS Relief are not allowed unless the company in which the investment is made qualifies for a tax clearance certificate.

Finance Act 2015

The employment and investment incentive scheme was amended by The Finance Act 2015. The Finance Act 2014 had provided for:

• an increase of the holding period for qualifying shares to four years;
• an increase in the period for the company to remain a qualifying company to four years and an increase to four years of the period during which a person receiving payment may not be connected;
• increases on the amounts that may be raised from €5 million to €15 million under EII during the company’s existence;
• removal of management of a nursing home and internationally traded services with Enterprise Ireland certification from the list of excluded trading activities;
• expansiion of relief to medium-size and enterprises in unassisted areas including Dublin and Cork;
• fund raising company requiring tax clearance certificate.

EU Rules required EU State aid approval. EU State aid rules themselves changed its focus during this period. New state aid rules apply under Finance Act 2015. The earlier EII rules required an increase in employment number over the three year period from the relevant issue to more than a threshold comprising qualifying employees in the year of assessment relative to the employment threshold before issue of shares.

Qualifying Employees

An average amount of emoluments paid to qualifying employee in year three must be greater than the average threshold amount. This is emoluments paid to qualifying employees in the tax year before eligible shares were issued divided by the number of employees in that year.

The 2015 legislation changed the test. The employment relevant number is to be greater than the employment threshold number. The relevant amount (instead of the average relevant amount paid in year three) must exceed the threshold amount (instead of the average threshold amount) paid for issue of share by the emoluments paid to at least one qualifying employee.

A quantifying employee is amended from a person who is an employee, not less than four days per week to an employee other than a director who is employed for at least 30 hours per week and the employment is capable of lasting at least 12 months.

Nursing Homes

The Finance Act 2015 amended the definition of qualifying nursing home. Neither the nursing home or qualifying residential units must be subject to any power by which they can result in the unit or the home or the units being re-vested in the persons from whom they were purchased or exchanged.

Funds raised by qualifying company must be used for enlarging the capacity of that nursing home. Funds raised to increase the capacity of the nursing home must be used for that purpose within 30 days before the end of the four-year period, after the date the shares were issued.

2015 Scheme Changes

The terms of EII and SCS were amended by the Finance Act 2015 to marry with the changes in the EU State aid rules. A new general block exemption rules published in 2014 defined the circumstances in which they did  not need specific approval. The State aid reporting obligation is linked to the terms of the exemption. The scheme was amended to ensure that companies come within the terms of the exemption.

The company must be

• a unlisted, small to medium size enterprise;
• it must not be operating in any product or service market, i.e. it must be a startup or
• if it has operating in such a market for less than seven years following its first commercial sale, including market testing sales or where it requires initial risk finance based on a business plan prepared in view of entering a new or geographical market, in which risk finance is later than 50% of their average turnover in the previous five years.

In relation to follow on investments, including after the seven years from the first sale, the following conditions must apply.

• total funds raised must be €15 million or less;
• the possibility of follow on investment must be provided for in the original business plan and
• the company must not be linked to another undertaking, other than a financial intermediary or independent private investor providing finance under EII unless the company meets the SME definition.

The relevant period of four years applies to ordinary shares.