Recent Reform of the Employment Investment Incentive Scheme

The Employment Investment Incentive Scheme (the ‘Scheme’), a tax incentive scheme for investors in Irish companies, was introduced in December 2011 replacing the then existing and popular Business Expansion Scheme. 

In broad terms the Scheme entitles ‘qualifying investors’ to income tax relief (which can be offset against rental income) on their investment for shares in ‘qualifying company[ies]’ (each term as defined in the legislation and requiring the investment structure, the company and the investor(s) to meet certain eligible criteria) subject to certain conditions and limitations.


The primary purpose of the changes to the Scheme brought about by Section 25 of the Finance Act 2018 (amending Part 16 of the Taxes Consolidation Act 1997 (as amended)) (the ‘Act’)) is to increase the efficiency and effectiveness of the Scheme.

What we see as the five key reforms are:

  1. Introduction of Self -Certification processes for the investor and the company;
  2. Changes to the nature of ‘Eligible Shares’;
  3. Changes to the ‘Qualifying Purpose’ for the investment fund;
  4. Changes to the eligibility test for the qualifying company;
  5. Lifting of the listing restriction on qualifying companies.

1. Self-Certification: In accordance with Section 508A of the Act an applicant company can now self-certify that it meets the criteria necessary to be deemed a ‘Qualifying Company’ under the provisions of Section 490 of the Act. 

The applicant company will issue a ‘Statement of Qualification’ to the investors attesting to the fact that it meets the qualifying company criteria and this ‘Statement of Qualification’ will be used by the investor to submit a claim for tax relief from Revenue. 
Meanwhile, investors will similarly be entitled to self-certify that they have met the qualifying investor criteria as set out in Section 500 of the Act. 

2. Eligible Shares: Prior to the amending legislation it was a condition for relief under the Scheme, that the shares issued to investors would ‘..carry no present or future preferential right to a company’s assets on a winding up…’ and thereby obliging the investors to fully participate in the economic risk of the investment. This supported the policy behind the introduction of the Scheme and avoided investors being shielded from the economic risk of the investment while at the same time obtaining generous tax benefits. 

Under Section 494 of the Act ‘Eligible Shares’ must be new shares but may now carry preferential rights to a dividend or repayment of capital and may be redeemable.  While the nature of such shares would appear to provide opportunities to offer a lower-risk investment, certain anti-avoidance measures have been introduced at Section 495 of the Act which will apply to deny relief where there are risk- limiting mechanisms put in place for investors which could ‘..reasonably be considered to substantially reduce the risk..’ of return (Section 495(3) of the Act). Such mechanisms include any rights attaching to the shares under the constitution, or in any shareholders agreement, or ‘…personal guarantees from existing shareholders that the investor will be able to dispose of the shares after the relevant period..’(Section 495(6)(c)(i) of the Act).

3. Qualifying Purpose: Up to now the funds raised through the Scheme must have been used for a qualifying trade and the amended Section 496 of the Act now provides that the funds must  be used for a ‘Qualifying Purpose’, being (i) for the purpose of carrying out relevant trading activities, or, (ii) in the case of a company which has not commenced to trade, for the purposes of carrying on research and development and innovation which is connected with and undertaken with a view to carrying on of relevant trading activities; where the use of the money will contribute directly to the creation or maintenance of employment in the company (Section 496(2)(a) of the Act).

4. Eligibility Test: Previously the eligibility test for when claims for relief could be made was based on commencement to trade and research and development spend requirements with various trigger points applying. The new legislation now simply provides that a qualifying company must have spent a minimum of 30% of the amount raised through the Scheme on a ‘Qualifying Purpose’ (Section 508A of the Act).

5. Listing: Although to be a qualifying company under Section 490 of the Act the company is required to be unlisted (and with no arrangements to become listed) at the time the eligible shares are issued there is no longer a requirement for the company to remain unlisted throughout the relevant period.

The principal aim of the amendments to the Scheme is to establish a more focused regime of tax relief for investors and to streamline the administrative process. It remains to be seen what these changes will mean for the overall take up on the Scheme and we will continue to monitor revenue statistics.

For further information please contact Bríd McCoy (Partner) or Andrea de Courcey (Solicitor) or your usual AMOSS contact.