Investors

WHAT WE OFFER?

  • Up to 40% Income Tax Relief
  • Nearly two decades of experience
  • Regulated by the Central Bank of Ireland
  • Regular updates are provided to investors
  • Experienced management team
  • Diversified investments spread across 3 – 5 companies annually

FAQ - Investors

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

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.

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
  • Investor files tax return in January (1 month later), claiming a refund of €40k from Revenue. The net cost of the investment is €60k
  • 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 refunds the investor €120k. This results in a 2X (before tax) return over 4 years.
  • The investor is taxed on the uplift from €100k to €120k. In most investments, an investor would expect a 2X return to be fully taxed, however, only a portion of the gain is taxable here. This is a major benefit to EIIS investing that is often overlooked.

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.
Please note that it is also possible to request a refund of income tax paid through your salary in the form of tax credits.

Once an income tax return is filed, Revenue usually refunds the tax within 1 week. If the taxpayer owes Revenue tax for rental income or employee share options, then EIIS relief can be offset against this once the return is filed.

Yes, we have several clients who have begun making fixed income return EIIS investments annually when turning 50 and can continue until early retirement at 55. When turned 55, the investor then had 5 years of EIIS returns to cover living expenses until their pension kicks in at 60. One of the positives of this type of planning is that returns can be tax-free once the EIIS income replaces your employment income.
How it works – €50k annual example:

  • Age 50 – 54: €50k annual investment, €20k tax refund (net cost €30k per annum)
  • Age 55 – 59: €60K annual EIIS return (€50k non-taxable capital, €10k treated as income tax covered by tax credits)
  • Age 60: Pension kicks in, can withdraw 25% of pension pot tax-free

The investor has €60k after income per year from age 55 – 59 until the pension age

Yes, if you have excess cash in your business, you can declare a one-off bonus or dividend to create an income tax liability. This can then be used to make an EIIS investment where the income tax at 40% is refunded similarly to a pension contribution.

How it works – €50k example:

  • Declare €50k bonus to company director in December
  • The company claims tax deduction and pays income tax
  • The investor makes a €50k EIIS investment in December
  • Investor files an income tax return in January and claims 40% tax relief (€20k)

Yes, we have several clients in this situation where the person has sold their trading company and the funds flowed directly into their holding company tax-free. The problem now is how to get access to these funds personally. EIIS investing can be a tax-efficient method to extract funds personally.

How it works – €100k example:

  • Declare a dividend of €100k in December
  • Make an EIIS investment of €100k in December
  • Company withholds 25% of dividend to file dividend withholding tax return in January of €25k
  • Investor files an income tax return in January, receiving a refund of €40k

We often see investors investing the maximum of €250k per annum using this method

EIIS investing and pension contributions provide the same 40% tax relief. The main benefit of EIIS investing over pension contributions is:

  • Lock up Period – EIIS investing is for 4 years, pension funds are restricted from access until retirement age.
  • Rental Income – EIIS tax relief extends to rental income, pension contributions do not

Yes, ARFs are becoming more popular in Ireland in recent years due to the low rate of return on retirement contracts. However, given the high level of income tax on the drawdown of ARFs, funds are often tied up. One major benefit to EIIS investing from ARF drawdowns is that it is likely that there will be no PRSI leakage if the investor is over 66 years of age. 

How it works – €100k example:

  • Declare €100k salary from ARF in December
  • 40% income tax is withheld
  • The investor makes a €100k EIIS investment in December
  • Investor files income tax return in January and Revenue refund 40% of income tax

EIIS investing is most suitable for professionals who have income over €100k subject to income tax. These generally fall into one of several categories:

  • Professionals operating in a partnership – accountants, doctors, solicitors, dentist
  • Tech employees with large tax liabilities resulting from a mixture of salaries and employee share schemes; and
  • Landlords

There are several ways to discover EIIS investments including:

  • Sunday Business Post – companies looking for investment often put adverts in the paper
  • Crowd Funding – Platforms such as Spark provide Irish EIIS investments, however, please note that Spark only provides ordinary equity investments
  • EIIS Funds – There are several EIIS Funds in Ireland including the relaunch of the Quintas EIIS Fund, The EIIS Innovation Fund.
  • Advisors – Accountancy firms and other advisors raise funds for their clients through EIIS

EIIS Funds raise money from individual investors and then invest in 3 – 6 companies over 12 months. The main benefits of EIIS Funds for investors include:

  • Diversity – EIIS investments are high risk, therefore, diversity can be a real benefit for investors
  • Selection Process – EIIS Fund managers search throughout the country for the best EIIS investments
  • Professional management – EIIS Fund managers put covenants in place for investment companies to allow for the best chance of repayment of invested capital. These can include a restriction on founder salaries, a restriction on capital expenditure, etc.

In our view, EIIS funds are the safest way for investors to avail of EIIS investments

You should always ensure that your EIIS investment has an investment manager. Advisors such as accountancy firms and EIIS Funds will manage all investments. This can be as simple as negotiating the terms of the investment and ensuring your funds are not wasted by the company. Having an investment fund manager is crucial for successful EIIS investing.

The main risk to EIIS investing is that the company fails and your investment goes to zero. If this happens, you will still receive your 40% tax relief. However, you will not receive any capital return.

This is a complicated topic that is best explored more on an individual basis. The return can be subject to either income tax (up to 55%) or CGT (33%). However, it depends on how the capital is returned by the company.

One major benefit to EIIS investing is that the return from the refund of income tax is not subject to tax. This is easier to illustrate by way of an example:

How it works – €100k example:

  • Investment: €100k
  • Tax Refund: €40k
  • Net Cost of Investment: €60k
  • Coupon: 5% per annum
  • Total Return: €120k (i.e. €100k + 5% coupon for 4 years: €20k)

In the above scenario, only €20k is subject to tax. This means that the net cost of the investment has grown from €60k to €120k, but only €20k of that gain is subject to tax.

You should expect communication from the investee company at least once per year. If your investee company is a consumer brand, you may receive investor gifts such as Christmas baskets of their products.

Fixed rates of return with an annual coupon of 5% can provide an IRR of over 15% after tax. This is a very high IRR for any investment. There is also a guaranteed exit mechanism that is attractive to investors. However, the downside is that your investment is capped which does not appeal to certain investors.

Equity investing utilising EIIS can provide a 40% discount on the valuation that you invest in a company with unlimited earning potential. This is a very attractive proposition for Angel investors. The downside to this is that it may be difficult to exit your position. This will likely only happen through a trade sale which the investor will have little to no input over