The Minister for Finance, Mr. Michael Noonan T.D., welcomes European
Commission state aid approval for the Employment and Investment Incentive and Seed Capital Scheme and commences the operation of the schemes with immediate effect 25th November 2011.
The Minister for Finance, Mr. Michael Noonan, T.D., announced today that state aid approval has been received from the European Commission for the Employment and Investment Incentive (EII) and the Seed Capital Scheme (SCS).
The Minister said “I am delighted to have secured the necessary approval from the European Commission for the new Employment and Investment Incentive and Seed Capital Scheme. It is clear that businesses, particularly small and start-up companies, often experience difficulty in accessing early stage development capital and that there is a shortage of such finance in the pre and early start up phases of new enterprises.
These new incentives will ensure that tax relief is fully targeted at job retention and creation while ensuring that more companies can qualify for the schemes. The incentives will come into effect in respect of eligible shares issued, from 25 November 2011 to 31 December 2013 in line with the terms of the approval obtained
from the European Commission under State aid rules.”
The Minister also took the opportunity to announce the end of relief under the Business Expansion Scheme. The latest date for tax relief under this scheme will be for shares issued on or before 31 December 2011. The Minister stated “November and December of each year are traditionally the peak months for raising investments under
the BES. This investment pattern is expected to continue with the new scheme.
In view of the extended time frame that has been involved in achieving the approval of the European Commission, I have decided to allow for both schemes to run concurrently up until the end of this year. This will facilitate those that have already subscribed for shares, or who wish to do so, in a BES qualifying company, to receive
tax relief at BES rates, provided the associated shares are issued before the end of the year.”
During negotiations with the European Commission in relation to the approval of the new incentives, the Irish authorities undertook to introduce a small number of amendments to the legislative provisions governing the schemes. The Minister intends to provide for the necessary amendments, including those providing for the
commencement of the schemes from 25 November 2011, in Finance Bill 2012.
Full details will be set out in that Bill but the changes are essentially that as and from 25 November 2011:
• A qualifying company must carry on relevant trading activities from a fixed place of business in the State;
• Removal of the requirement for a minimum percentage of the company’s expenditure, in relation to its trading activities, to be made in the State in order for it to qualify for the scheme.
TECHNICAL NOTE – Background Details
The Employment and Investment Incentive (EII) provides a tax incentive to private investors to invest medium-term equity capital in companies, which would otherwise find it difficult to raise such funding. Such companies would instead, usually have to rely on loan finance, which in turn can be difficult to obtain.
Provided an investor holds his or her investment for a minimum period of 3 years, the EII provides individual investors with tax relief of 30% in respect of investments of up to €150,000 per annum in companies. Where it has been proven that additional jobs were created or the company used the capital raised for expenditure on research and development, an additional 11% relief isavailable at
the end of the holding period. This additional relief will not be subject to the high earners restriction.
The aim of the Seed Capital Scheme (SCS) is to encourage individuals currently or formerly in employment to establish new business ventures. The scheme provides a refund of tax paid in previous years to individuals who start their own business. The amount of relief is restricted to the amount of the investment.
Therefore the value of the refund depends on the amount of the individual’s investment and their effective income tax rate. For any particular year of investment, the refund is limited to the tax the individual has paid in the previous six years, subject to certain limits and conditions.
European Commission approval for the schemes has been granted subject to a small number of amendments being made to the legislation governing the schemes. The Minister intends to bring forward these amending provisions in Finance Bill 2012. The schemes will be operated by the Revenue Commissioners with immediate effect Approval from the European Commission was required under Article 108 (3) of the Treaty on the functioning of the European Union.