Investment and Share Incentives in Ireland

Employment and Investment Incentive (EII)

This is a tax relief incentive scheme that provides tax relief for investment in certain corporate trades and allows an individual investor to obtain income tax relief on investments. The scheme replaced the Business Expansion Scheme (BES) and was announced by the Minister for Finance in his Budget 2011 speech and has been approved by the European Commission.

The EII scheme is open to anyone who pays income tax and is living in Ireland and the smallest investment is typically €5,000 but if you want to be more adventurous you can invest up to €150,000 per annum. An EII investor should expect to receive their investment back, with a premium, after three to five years.

You can claim tax relief on your investment when certain conditions are met. The relief is split into two tranches:

• 30/40 on receipt of an EII 3 certificate in the year of investment (relief is initially available to an individual up to a maximum of 30% of the amount invested)
• 10/40 on receipt of an EII 3A in the fourth year after the initial investment

A further 10% tax relief is available where it has been proven that employment levels have increased at the company at the end of the specified period (3 years) or where evidence is provided that the company used the capital raised for expenditure on research and development. The remaining 10% of the EII investment is available upon the meeting of conditions in the fourth year after the EII investment, which are:

• An increased number of qualifying employees;

And

• An increase in the wages paid by the company to the qualifying employees by at least the wages of one qualifying employee

Or

• An increase in the company's R&D expenditure

There are four criteria which must be met at the time of share issue for a company to be able to qualify for the EII 3:

1. Be a micro, small or medium-sized enterprise
2. Not be regarded as a firm in difficulty
3. When the initial EII investment is received, the company must meet one of the following conditions:

• has not operated in any market
• it is trading for less than seven years, or the investment under EII is required to fund a new product or enter a new geographical market and the amount of the investment required under EII is greater than 50% of its average annual turnover for the preceding five years

4. When any follow-on EII investments are being raised, these investments are only eligible for relief where the possibility of follow-on EII investments was foreseen in the undertaking's original business plan (being the business plan first used to raise financing under BES, SCS, SURE or EII).

Companies will issue ordinary shares to you for the amount you invest. You must hold those shares for at least four years.

Stock options in your employer's company

Revenue-approved savings-related share option schemes allow you to save for and purchase share options in your employer's company tax effectively. You should ask Revenue and your employer what rules apply to your share options and when you’re liable to pay tax.

Employee Share Ownership Trusts (ESOT)

An ESOT is typically established alongside an Approved Profit Sharing Scheme (APSS). The company contributes funds to the ESOT to purchase shares for distribution to its employees and can claim tax deductions for this expense. In Ireland, most ESOTs have been set up by semi-state bodies.

Approved Profit Sharing Schemes

Approved Profit Sharing Schemes allow employers to give their employee shares in the company up to a maximum value of €12,700 per year tax-free. However, you must pay USC and PRSI on the value of the shares. Approved Profit Sharing Schemes are subject to certain conditions set out in legislation and administered by the Revenue Commissioners.

In Ireland, employees can get share options from their company that may be 'tax-free' or 'tax efficient'. There are two main ways:

• Approved Profit Sharing Schemes
• Stock Options

If the scheme meets certain conditions, an employee pays no tax on shares up to a maximum value of €12,700 per year. The employer must hold the shares for a period of time (called the ‘retention period’ - generally two years from the date on which they were appropriated) and the employee must not dispose of the shares before three years.

If you dispose of shares before this time, then you’re liable to pay income tax on whichever is the lower of the following:

• the market value of the shares when they were given to you

or

• the value of the shares at the time of sale

Approved Profit Sharing Schemes are subject to a number of conditions that should be checked with the Revenue Commissioners.