The recent Budget and subsequent Finance Bill No  2 2013 propose to remove the Employment and Investment incentive scheme (EII) from the High Earners Restriction on use of certain tax reliefs for a period of three years from 2014. 

It is perhaps timely therefore to summarise the main features of this scheme especially as we are approaching the traditional busy time of year in relation to taxpayers wishing to consider qualifying investments that may be offered to them in coming weeks.


The EII scheme was introduced by Finance Act 2011 and replaced the Business Expansion (BES ) scheme which had been in place since 1984 but which was regarded by many as rather technical and bureaucratic.  European Union approval was received later that year and the scheme came info effect on 25 November 2011.

The main features of the scheme are:


1.            The relief will apply to qualifying shares issued in eligible companies at any time up to 31December 2020.

2.            In general many trading companies will be regarded as eligible companies as long as they areincorporated in Ireland or an other EU/EEA State, are not public companies and are not inthe general service sector. The onerous pre approval procedure applicable under the old BES scheme is now removed.  Green energy and certain tourism related activities will qualify        generally although certain industry sectors such as the coal steel and shipbuilding sectors are excluded. 

3.            A distinction is made between:

             A micro or small enterprise which has 50 or fewer employees and turnover/balance sheet value of less than €10 million and which will be regarded as a qualifying company regardless of its location,

             A medium  company with less than 250 employees, turnover less than €50 million and   balance sheet value of less than €43 million.  This will be regarded as a qualifying company if located outside of Dublin, Cork, Kildare, Meath or Wicklow.However, medium sizedcompanies that are still regarded as being in the startup phase of development will be regarded as qualifying when located in these counties.

4.            It is important to note that in a Group situation the company will only qualify where all associated Group companies also meet the relevant qualifying conditions. For this reason to avoid complications Companies intending to attract EII funds are generally standalone entities.

5.            The lifetime qualifying investment that can be made in a qualifying company is €10 millionwith an annual cap of €2 million. 

6.            A controlling shareholder can not have an interest in another company carrying on substantially the same trade – the condition here refers to a period of two years before andfive years after an EII investment is made so care is required to ensure that a taxpayer wishing to avail of the relief does not inadvertently come within this anti avoidance measure.  


To qualify for the relief the investor must be tax resident in Ireland and subscribe for shares at a time when he/she is not regarded as connected with the company. In broad terms this means that the investor can not directly or indirectly own 30% of the issued share or loan capital of the company although this condition is relaxed where the total issued share/loan capital is less than €500,000.

The shares must be held for a period of at least three years and tax relief will be available on amounts invested of up to €150,000 in any one year. It is for this reason that the removal of the restriction on the use of the resulting tax relief on an investment of as little as €80,000 in any one year is quite important.

Tax relief will be available at a rate of 30% in the year the investment is made with the remaining 11% – assuming an investor will generally be liable to tax at the marginal 41% rate – claimed at the end of the three year holding period. To get this additional 11% relief certain conditions will need to be met by the company in relation to either/or a net increase in employment numbers or increasing expenditure on research and development activities.


It is important that the shares are held for at least the minimum holding period of three years. If there is any arrangement in place to counteract this by either a share redemption, repayment of an existing Directors loan – even if bona fide in place at date of share issue – the relief will be clawed back.


As with many measures in Irish tax legislation the basic EII relief is quite straightforward and easy to understand, however, a comprehensive review of the finer detail of legislation is warranted before advising investors to invest funds in a company in a manner that will attract tax relief as even a bona fide investment can in certain circumstances fall foul of quite tricky anti avoidance measures.