The Employment Investment Incentive (‘EII’) is a tax relief available to encourage individual investors to provide equity risk finance to trading companies.
Revenue have advised that in order to avail of EII a company must be a ‘qualifying company’. When determining if a company is a qualifying company regard must be had to both the activities of the company itself and also of the other businesses within its Relief for Investment in Corporate Trade (‘RICT’) Group. The RICT Group is made of a qualifying company and all of its partner businesses and linked businesses. Details of what constitutes a partner business and a linked business are set out in Annex 1 of the General Block Exemption Regulations (‘GBER’). The company and the RICT Group must be an SME and the qualifying company in which the investment is made can be carrying on a trade itself, or it can be the holding company of a trading company.
The company wishing to avail of EII must use the amounts raised by EII for ‘relevant trading activities’, which includes most trades. While there are no specific restrictions for companies engaging in solar activities, the following trades are excluded;
i. Once-off trades,
ii. Dealing in commodities, shares or other financial assets,
iii. Financing activities,
iv. The provision of professional services, which means:
I. Services of a medical, dental, optical, aural or veterinary natures,
II. Services of an architectural, quantity surveying or surveying nature and related services,
III. Services of accountancy, auditing, taxation or finance,
IV. Services of a solicitor, barrister or other legal services and
V. Geological services,
v. The occupation of woodlands
vi. Operating or managing hotels, guest houses etc, unless the activity is a tourist traffic undertaking
vii. Operations carried on in the coal, steel or shipbuilding sectors, and
viii. The production of films.
Finance Act 2018 introduced some changes to the administration of EII. From 1 January 2019 qualifying companies can self-certify their eligibility in relation to EII investments rather than requiring advance approval from Revenue. Revenue has published detailed guidance on EII, which will assist companies in determining whether, on a self-assessment basis, they qualify for EII. That detailed guidance is contained in the following Tax and Duty Manuals: Part 16-00-02, Part 16-00-03, Part 16-00-10 and Part 16-00-11, all of which are available on the Revenue website at www.revenue.ie/en/starting-a-business/initiatives-for-startup-businesses-and-smes/relief-for-investment-in-corporate-trades/qualifying-company.aspx.
If, after a review of the Revenue guidance, a taxpayer company seeking EII investment is unsure whether it fulfils certain eligibility criteria, an application can be made to Revenue for an advance confirmation. Details to be provided when seeking confirmations of eligibility are set out at Appendix 1 of Tax and Duty Manual Part 16-00-02, which can be found at the link provided above.
Should a confirmation of eligibility be required, the application must be submitted through the Revenue Technical Service (RTS) and must be made by completing a Form RTS1A. Further guidance on using the RTS, specifically TDM Part 37-00-00a, along with links to the Form RTS1A can be found on the Revenue website at www.revenue.ie/en/tax-professionals/rts/index.aspx.
In addition to this, I can inform the Deputy that in the period leading to Budget 2021, and indeed since then, stakeholders have come forward with a number of proposals aimed at broadening out the scope and effectiveness of EII scheme.
These include proposals to amend the qualifying company requirements to allow renewable energy community projects under the Renewable Energy Support Scheme (RESS) to participate.
Given the complexity of the many issues involved, including the need to ensure that state-aid principles continue to be observed, it was not possible for me to bring forward legislative proposals in the context of Finance Bill 2020.
However, in my Budget speech, on 13 October last, I indicated that my Department will, this year, initiate an assessment of how the EIIS can be enhanced in the light of the current crisis. Preparations are already underway in this regards and next month it is proposed to launch a consultation process where stakeholders will be invited to submit their views and suggestions to the Department in writing with a particular focus on the following:
- improved support for start-ups,
- the potential to attract capital from a broader range of investors, and
- the potential to include certain energy-related projects, including RESS projects, within the remit of the scheme.
The intention is that this will facilitate further engagement and discussion with stakeholders leading to the development of proposals for my consideration by end Q1, 2021.