The company must be a qualifying new venture not less than two years. It must not have taken over an existing trade.
Formerly for EIIS it was required that Revenue’s issued a statement of qualification to the qualifying investors or the designated fund to confirm that the company was a qualifying company and that the investment was a qualifying investment. The Finance Act 2018 replaces this process with a self certification process. The company certifies the matters on the basis of information under its control.
The claim for EIIS relief must contain detailed information on various matters of relevance in the format directed by revenue. The applicant must declare that they qualify. Company may not issue a statement of qualification until they have at spent 30% raise for a qualifying purpose. The statement must issue within two years of the date of issue of the shares.
Finance Act 2019 removes the requirement that 30 per cent of the amount raised as equity risk finance by a qualifying company must be expended on a qualifying purpose before a qualifying company can issue a “Statement of Qualification” to an investor. It amends the timeframes within which that Statement of Qualification must be provided to an investor by the qualifying company.
In order to qualify for the second tranche of relief (25% the company must issue a statement of qualification in respect of second stage relief to the investors or the managers of the designated fund. Further detailed information and certificates are required. The statement may not be issued until after the relevant period (of these four years after the share issue.
Certification of Qualification
EIIS investors and SURE investors may not qualify until they received the statement of qualification for the first tranche and if applicable the second tranche. Where the investment is made from a fund the certificate comes from the fund managers.
There are provisions relating to qualifications as designated funds. They have obligations to make returns to Revenue.
Clawback of Relief
Relief is not allowed unless the raising of risk capital by the company and a subscription for shares are bona fides commercial purposes and do not form part of a scheme or arrangement the main purpose of or one of the main purposes of which is the avoidance of tax.
Where shares in a qualifying company are disposed of before the end of the relevant period and the disposal proceeds are not returned the qualifying investors regulate they are treated as having made a part disposal of the shares. They are deemed to have received an amount equal to the portion attributable to their shareholding of shares of the market value of the subsidiary at the date of disposal or actual proceeds for the disposal of her.
There is a clawback of relief if the investor receives value from the qualifying company within the relevant period. If there is any value paid for the company or its connected group companies whether by repayment repurchase of shares or other indirect or equivalent arrangements, there is deemed to be a receipt of value. The amount of relief is reduced by the amount of the value received.
Receipt of Value
The definition of receipt of value is extensive and includes
- any repayment redemption or repurchase of share capital and securities
- payments in respect of giving up of any such rights
- repayment of debt other than ordinary trade at or pre-existing bona fides debts,
- release or waiver of any liability
- loans or advances directly or indirectly made benefit facility provided for the individual
transfer of assets at undervalue or overvalue payments other than a director or employee
- similar such arrangements if undertaken by persons connected with the company
Where a company or group company acquires any shares in the EIIS/or company from a makes a payment cancellation or extinguishment of shares to certain persons other than the claimant there is deemed to be a receipt of value and clawback.
Where the company redeems or purchases shares from a member other than the investor there will not be a clawback if the investment was not made within the company or the group within the prior 18 months and there is no (EIIS/or SURE) investment in respect of which a claim is made within the following 12 months.
Finance Act 2019 clarifies the position that if a company buys back, redeems or repays any shareholder for shares in the company using EII investments within the compliance period, then there will be a reduction in the relief granted to all EII investors as a result.
The Act also includes an additional circumstance as to the date on which interest under section 1080 can be applied; and applies a penalty for any failure to inform Revenue of an event occurring where relief would be withdrawn.
Withdrawal of Relief
If the relief is clawed back because of an incorrect statement of qualification by the company or because it ceases to be a qualifying company and assessment of corporation tax is made on it in respect of the relief incorrectly given.
If the relief is withdrawn due to investor -related conditions an assessment is made on the investor in respect of the relief incorrectly given. They include
- risk reduction measures
- replacement capital
- other members receive value
- tax avoidance reasons
- investors no longer qualify investor
Similar provisions apply to the withdrawal of SURE relief.
In the usual way penalties et cetera may arise if the claims are made incorrectly. This can include publication as a tax default.
The company connected parties and managers of designated funds have an obligation to notify revenue in writing within 60 days of any event that triggers withdrawal of relief.
A qualifying investor is obliged to provide information that Revenue may require in order to verify details of the investment, through electronic means that Revenue makes available.
The Finance Act 2019 obliges managers of a designated fund to return details of holdings of eligible shares, through the electronic means that Revenue make available, within 30 days of receiving the statement of qualification from a qualifying company.
Finance Act 2021 makes a number of amendments to Part 16 of the Principal Act, in respect of Relief for Investments in Corporate Trades. Those reliefs include the Employment Investment Incentive (“EII”), Start-Up Relief for Entrepreneurs (“SURE”) and Start-Up Incentive (“SCI”).
There are conditions regarding the level of income an individual who wishes to avail of relief can have under Start-Up Relief for Entrepreneurs (SURE).
There are conditions for carry forward of unused relief. This aligns the amount at which point no more relief can be claimed in a year and it is therefore carried forward to future years, to the limits set out of a qualifying investment which an investor may claim relief under in a year.
Finance Act 2021 extends the Capital Redemption Window provided for in section 508R. It extends it to qualifying investors that remain within a compliance period for a qualifying investment.
Finance Act 2022 amends the Relief for Investments in Corporate Trades. Those reliefs include the Employment Investment Incentive (“EII”), Start-Up Relief for Entrepreneurs (“SURE”) and Start-Up Capital Incentive (“SCI”).
An individual is not a qualifying investor if that individual or an associate of that individual is connected with the company within the meaning of the provision . An associate includes a partner of that individual. There is an exception to the connected persons provisions in respect of persons who are partners solely as a result of being partners in a partnership constituting a qualifying investment fund. This exception does not extend to partnerships arising in any other circumstances. It is confined in its application to Part 16 relief only.
Finance Act 2022 amends the information to be included in statements of qualification to reflect the amendment made by Finance Act 2019 to allow relief in respect of the full investment made under the Employment Investment Incentive Scheme (EII) and the Start- Up Capital Incentive Scheme (SCI) to be claimed in the year of investment. The section now provides that a statement of qualification must include either the amount of the investment that qualifies for relief under section 502(2)(a) where shares were issued on or before 8 October 2019 or section 502(2A) where shares were issued after 8 October 2019.
Where the legislation requires, the full amount of the Employment Investment Incentive (EII) relief claimed by an individual investor may be recovered from the company in which the investment has been made for investments made on or after 1 January 2023.