What is EIIS relief?
The enterprise investment incentive scheme (EIIS) allows you to obtain tax relief on a subscription for eligible shares, (new ordinary shares that have no present or future preferential rights to share in the profits) in an unquoted company which carries on a qualifying trade. You may also obtain relief by buying units in a designated fund which in turn invests in EIIS qualifying companies. Designated funds are now rare, and most EIIS investments are made by direct investment in the company concerned.
The EIIS is aimed at investments in which your capital is genuinely at risk. You may be denied EIIS relief if your investment return is guaranteed, i.e., if there is any agreement, arrangement or understanding to eliminate the business risk.
You are allowed to deduct the amount subscribed for eligible shares from your total income for the tax year in which the shares are issued. The maximum EIIS relief you may claim in a tax year is Ä150,000 (Ä300,000 in the case of a married couple assessed jointly, where each has subscribed the maximum amount). If your EIIS subscription cannot be relieved in a tax year because you have insufficient total income, or because the amount subscribed exceeds Ä150,000, you may carry forward the unrelieved amount for relief to the next tax year, and later tax years if necessary. EIIS relief carried forward in this manner must be given in priority to any relief due for the current tax year.
Generally, it is a condition of the relief that you must not be connected with the EIIS company, i.e., you must not be able to control the company, or to obtain 30% or more of the company is ordinary share capital, issued share capital, voting power, or assets (in the event of the company being wound up). In calculating whether you have breached the 30% rule, you are treated as having:
(a) a present right to all future rights (for example, share options), and
(b) any rights or powers of your associates (relatives, trustees of a settlement made by you, and co-beneficiaries).
This 30% rule does not apply if the company ís capital is less than €500,000.
You must not dispose of your shares during the relevant period, i.e., from the date the company was incorporated until five years after the share issue date. If the company was incorporated more than two years before the share issue date, the relevant period begins two years before the share issue date.
The maximum EIIS finance that may be raised by a company (or group of associated companies) in its lifetime is generally Ä2,000,000. In the case of a seed capital investment, the maximum is Ä1,500,000.
Seed capital relief
Seed capital relief is a particular form of EIIS relief. To claim it, you must already be an employee, and you must take up employment with a new company you have started. You may then claim EIIS relief for up to six previous tax years. You are regarded as an employee if your income from non-employment sources did not exceed:
(a) your total income from employment sources, or
whichever is the lesser, during each of the three tax years preceding the tax year which precedes the tax year in which the first investment is made.
You must take up employment with the company within the tax year in which you make the investment, or within six months of making the investment – this might apply, for example, where the investment is made towards the end of the tax year.
The rule which disallows EIIS relief if you hold 30% or more of the company’s capital, voting power or assets does not apply in the case of a seed capital investment. In fact, as a seed capital investor you must, throughout the relevant period, hold at least 15% of the company’s issued ordinary share capital.
The relevant period during which you may not dispose of the shares is the period beginning on the share issue date and ending two years later. If the seed capital company was not trading on the share issue date, it means the two year period beginning on the date the company began its EIIS-relieved operations.
You may elect to have the relief given to you for any of the five tax years before the tax year in which the shares were issued in respect of your investment. You can maximise your relief by nominating which of the five years are to qualify for relief.