Companies

WHAT WE OFFER?

  • Investment range of 500k – 2.5m 
  • Non-Dilutive capital ensures no loss of ownership 
  • 4-year investment term 
  • Additional financing available through Venture Capital, Private Equity, Debt 
  • Experienced investment advisors 
  • Follow on EIIS Round 
  • Company sale preparation

FAQ - Companies

EIIS is a replacement for the Business Expansion Scheme (BES) and was introduced by the Government in 2011. The objective of EIIS is to encourage individuals to provide risk-based finance to unquoted private trading companies to create employment. EIIS is a tax relief incentive scheme enabling private investors to avail of one of the few remaining tax reliefs by deducting the cost of their investment for income tax purposes.

EIIS relief provides a 40% tax refund for investors. For example, if an investor makes a €100k investment, Revenue will refund up to €40k of income tax, giving a net cost of €60k. The total refund can occur within 1 month of investing if timed correctly.

The maximum amount an investor can invest in a calendar year is €250k. However, this can be made up of several different investments totalling €250k

EIIS offers one of the few remaining tax deductions offering up to 40% tax relief and is one of the few sources of total income tax relief, which includes, for example:

  • Salaries
  • Rental income; and
  • Employee share options

Please note that investors cannot offset EIIS relief against CGT

The maximum amount a company can raise through EIIS is €5m in any 12 month rolling period and €15m in its lifetime.

4 years, EIIS investments must be held for a minimum of 4 years or the tax relief will be clawed back. Please note that if a company sells an investor’s shares before the 4 years, the clawback will fall on the investor and not the company. Therefore, investors should seek prior agreement to be compensated by the company if the company is sold before the 4-year period elapses.

The structure of EIIS investments can be in many forms with the primary principle being that all investments are “risk finance” and “equity”. Different forms can be:

  • Ordinary equity
  • Redeemable preference equity (fixed income return akin to a loan)
  • Convertible equity

Once a company qualifies for EIIS, it is relatively simple to structure an investment to fit within the EIIS scheme.
Please note that the most common form of EIIS investment in Ireland is redeemable preference equity or fixed income return but equity investments are becoming more common in recent years.

The most common form of EIIS investing is redeemable preference equity. These types of investments are akin to a loan. An investor gives capital to a company for 4 years and receives a fixed rate of return of circa 5% – 8% per annum.
All interest/coupon is rolled up until the end of the investment period. This is to satisfy EIIS rules with no return of capital allowed to shareholders during the EIIS period (i.e. 4 years).

How it operates – €100k example:

  • The investor provides €100k capital to a company in exchange for a 5% annual coupon. Investment is made in December
  • The company files a RICT return with Revenue when the investment is made to provide an SOQ to investors to claim a refund of €40k from Revenue.
  • The company uses the funds for 4 years and agrees to return the investor their capital (€100k) + coupon/interest of 5% per annum (€20k) in 4 years.
  • 4 years later, the company pays the investor €120k.

Investors must make the full investment upfront and claim the refund of income tax later. Therefore, the timing of EIIS investments is crucial as most investors will reclaim the refund of tax through their income tax return.
If an investor makes a €100k investment in December, the investor could reclaim the tax relief one month later if an income tax return is filed in January. However, if an investment is made in January, an investor might have to wait 12 months before filing their next income tax return.
Therefore, companies should consider this when looking to raise EIIS. October – December annually is the best time to raise EIIS unless going through an EIIS Fund.

A RICT group is an EIIS qualifying company and all its Linked and Partner Businesses
Please see the technical Revenue guidance notes for discussions on Linked and Partner Businesses.
https://www.revenue.ie/en/tax-professionals/tdm/income-tax-capital-gains-tax-corporation-tax/part-16/16-00-02.pdf

A company is considered an ‘Undertaking in Difficulty’ where:

  •  The company (or RICT group) is more than 3 years since incorporation; and
  •  Where more than half of its subscribed share capital and share premium has disappeared because of accumulated losses.

For example, a company has raised €1m of issued share capital and has accumulated losses of €400k. The company can be a qualifying company since only 40% of the issued share capital is accounted for in losses. However, if the company had issued share capital of only €100, it could not be a qualifying company. This is the case where companies are funded through director’s loans. If the directors are willing to convert these loans into share capital, it could be possible to qualify.
Please note that the test must be applied on the date of investment.

Yes, the age of the company (and its RICT group) is crucial to understanding if it qualifies for EIIS. You should consider the following:

  • If under 3 years old – Should be relatively straightforward to qualify for initial risk finance provided the founders have no other similar businesses.
  • If between 3 – 7 years old – The main concern here is whether the company is an “Undertaking in Difficulty”.
  • If over 7 years old – Can no longer qualify for initial risk finance and must look towards expansionary risk finance.

Yes, it is possible to qualify once a company is older than 7 years, however, the company would need to look to expansionary risk finance.

  • Initial Risk Finance – This must be the first time a company is raising EIIS and in the first 7 years of existence. The original business plan should account for this.
  • Follow-on Risk Finance – This can be the second or subsequent time a company is raising EIIS but should be contained in the business plan.
  • Expansion Risk Finance – If a company does not qualify for initial risk finance or follow-on finance and is expanding into a new product or geographical market. This does not have to be in the first 7 years of existence and a new business plan is required. The company must raise at least 50% of the average turnover of the company for the 5 years previous.

Yes, it is possible to qualify for EIIS through a holding company. Please note that all subsidiaries must qualify for EIIS. 

EIIS Shares must be:

  • New shares issued for cash
  • Fully paid up
  • Risk based (i.e. cannot contain any terms that substantially reduce the risk to the investor such as a legal charge over assets)
  • Cannot be given on a converted director’s loan or share awards

The following conditions must be satisfied on the date the shares are issued:

  • Company must be incorporated in Ireland or an EEA country
  • The RICT group must be an SME (less than 250 employees and turnover of less than €50m or balance sheet of less than €43m)
  • The RICT group must not be an “undertaking in difficulty”
  • All RICT group companies must be privately held
  • Company must have a valid tax clearance certificate

The following conditions must be satisfied for the entirety of the EIIS period (i.e. 4 years):

  • Company must be tax resident in Ireland or an EEA country
  • Company be carrying on trading activities or R&D from a fixed place of business in Ireland
  • Any non qualifying EIIS activities carried on by the company must be incidental (for example, rental income)
  • Fully paid up share capital – all RICT group companies must have their share fully paid up at all times

Yes, there are several instances where EIIS relief can be withdrawn (or clawed back). The clawback can fall on either the investor or the company depending on the circumstances. As general rule, the clawback would fall on whoever is at fault for clawback arising, examples include:

  • Company subsequently didn’t qualify for EIIS (clawback on the company)
  • Sale of Shares (usually investors, even if drag/tag along applied)

Yes, 10/40ths of the EIIS relief can be claimed back if one of the following is not achieved:

  • Level of employees does not increase by at least 1 person; or
  • R&D spending does not increase

Yes, the business plan is crucial to qualifying for EIIS. It must be in writing and contain:

  • Details of the products, sales, and profitability development
  • How the money raised will be used (including cashflow projections)
  • Details of future investment
  • Genuine necessity for the investment

Details of what is required in the business plan are set out in Para 14 of Article 21 (GBER).

No return of capital to EIIS investors within the following period:

  • 2 years before the investment; or
  • 4 years after

There is a specific capital redemption window that allows EIIS investors to be repaid after 4 years even if additional follow on EIIS investors are waiting for the 4 year period to end.

Yes, when raising EIIS, the company must do the following:

  • RICT Form – the company is responsible for filing a RICT Form with Revenue. This will provide Revenue with the investor’s details and provide the company with Statements of Qualification (“SOQ”) for investors to claim the relief. This is now an automated process through ROS.
  • Statement of Qualification (“SOQ”) – An SOQ is provided to investors by the investee company to allow the investor to claim the tax refund.
  • Form 21R (Nominee Company) – If the investment is facilitated through a nominee entity, then the EIIS qualifying company must file a Form 21R in line with corporation tax filing deadlines.

Where a company issues shares qualifying for EIIS, it must file a RICT Form through Revenue online (ROS). The form is relatively straightforward to complete and could be done by founders with access to ROS.

An SOQ is provided to investors by the investee company to allow the investors to claim the tax refund. The SOQ replaced the previous EIIS certs.

Nominee companies are frequently used to hold EIIS shares. The benefit of a nominee company is to keep the company’s cap table clean. The main negative of a nominee company is that there will be additional annual compliance fees for the 4 years period.
There is no set rule on when a nominee company should be used. In general, nominee companies would be used where there are 5 or more EIIS investors.
The nominee company will require annual accounts to be prepared and filed with CRO and a return of third party information (Form 21R) to be filed with Revenue after each share subscription

Yes, details of the fundraise will be found in two public places:

  • Revenue Website
  • The CRO

No, the new system is self assessment and therefore, companies must self certify that their company is EIIS qualifying. The assistance of a competent tax advisor can provide guidance on this.

Please note that in contentious circumstances Revenue can provide a determination on specific elements of EIIS relief such as:

  • Undertaking in difficulty
  • The business plan
  • Initial risk finance
  • Expansion risk finance
  • Follow-on risk finance
  • Details of the RICT group

EIIS Funds raise money from individual investors and then invest in 3 – 6 companies over 12 months.

  • Simplified Fund Raising Process – The company deals with one investor who already has capital raised
  • Investment Manager – Benefit from an experienced investment manager who may sit on your board of directors
  • Institutional Investor – The EIIS fund will be a regulated entity and provide a layer of credibility to the company

If your company is issuing redeemable preference shares (akin to a loan), the investors should have protections and covenants built into the agreement. These can range from restricting certain transactions or payments to founders as well as issuing new shares. There are no set terms but the more covenants agreed to by the company, the more likely people are to invest in the company.
Investment managers may take a board seat and provide financial guidance. However, all will have the ability to appoint a director if certain covenants are breached.
If you would like to learn more about the role of an EIIS investment manager, please contact us.

If your company is not successful or does not generate enough free cash flow to pay back investors, the investment can convert into ordinary equity.

At least quarterly but the more correspondence the better. Every time a founder sends a correspondence to an investor, there is a chance that the investor could help you out with a certain issue or problem the company is facing. EIIS Funds can be great here if there are 50+ investors reading company updates.
At the EIIS Innovation Fund we send all correspondence through DocSend which restricts investors’ ability to download and forward company updates.