What is the Employment and Investment Incentive Scheme?
The Employment and Investment Incentive Scheme (“EII Scheme”) is a tax relief incentive scheme which provides tax relief against total income for income tax purposes to Qualifying Investors for investments in certain Qualifying Companies. The EII Scheme offers one of the few remaining income tax reliefs and is one of the few sources of total income tax relief (which includes, for example, rental income, ARF distribution income).
How does an Employment and Investment Incentive Scheme work?
Under the scheme, a taxpayer who puts money into an approved EII investment can reduce a substantial portion of their taxable income for the year in which the investment was made. The maximum investment allowed in respect of the years after 2019 is:
- €250,000, subject to those shares being held for a minimum period of 4 years or
- €500,000 where those shares are held for a minimum period of 7 years.
Tax relief on EIIS investments are not subject to the High Earners Restrictions. A married couple can each obtain individual relief on an investment of €250,000/€500,000, provided each spouse has sufficient taxable income.
How is the tax relief given on an Employment and Investment Incentive Scheme?
In 2020 EIIS tax relief is available in full in the year of the investment. The investee company will issue shares to you for the amount you invest. You must hold those shares for at least 4 years or 7 years depending on the initial investment amount.
Who can invest in an EII Scheme?
Tax relief on EIIS investment is one of the few sources of total income tax relief and it is not subject to the High Earners Restrictions. Therefore, it could be considered as an attractive investment option for:
- ARF clients with tax liabilities from distributions can use EIIS as a means to reduce their tax bills.
- For those who are close to being fully funded in their pension this is an alternative investment to reduce tax liabilities.
- For those who have significant taxable rental income, this is a means to reduce their tax liability.
What are the key risks of an EII Scheme?
- The investment is typically a Medium-to-long term investment in unquoted companies with no early exit mechanism (investor’s capital must be invested for a minimum 4 year period under Finance Act criteria).
- Investors are exposed to the performance of the investee company and as such may lose some or all of their invested capital.
- The value of the investment may go down as well as up.
What is my exit from the investment?
Exit is usually at the end of 4 years (or 7 years depending on the initial sum invested) and is pre-agreed with the investee company at the time of investment. This will be outlined in the investment terms.
Is an EII Scheme for me?
Before investing in an EII scheme or fund, you should obtain independent tax advice, consider your personal circumstances and your attitude to investment risk. EII schemes or funds are suitable for those who don’t need to access the money invested for the investment period, who can avail of the income tax relief on the investment and who are aware that they may lose some or all of their investment and can afford to lose some or all of their investment.
Who selects the investee companies?
We evaluate a large number of potential investee companies and EII funds each year and following a comprehensive due diligence and screening process carefully choose our final recommendations. Where you invest in a fund, the decision on which companies to invest in will lie with the fund manager and will be in line with their Investment Themes and Strategy set out in the investment brochure.