EII Funding

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Overview of the Employment Incentive and Investment Scheme.

The Employment Incentive and Investment Scheme (EII) allows individual investors to obtain income tax relief on investments made in each tax year  into EII certified qualifying companies.  The EII replaces the Business Expansion Scheme.

There is no tax advantage for the company in receipt of the EII but securing EII status may enhance their ability to attract other external funding. The maximum funding that a company can raise via EII is €15m throughout the life of the company.  However no more than €5m can be raised in any 12 month period.

To be compliant with the Scheme investors must hold shares in the company for a minimum of four years. Companies seeking EII must directly seek certification from the Revenue Commissioners.

Am I eligible?

Section 33 of the Finance Act 2011 reformed the old BES relief (Business Expansion Scheme) and effectively replaced it with a new Employment Investment and Incentive Scheme (EIIS). Further amendments to the scheme most recently in Budget 2015 and Budget 2016 commenced on the 13th of October 2015 by virtue of Budget 2016 Financial Resolution No.4 has enhanced the benefits of the scheme. The new incentive ensures that tax relief is fully targeted at job retention and creation. The main changes introduced under the new EIIS Scheme can be summarised as follows:

  1. The qualifying trades limitations were curtailed making the new scheme more available to the majority of small and medium sized trading companies. This was aimed at encouraging investors to invest in a broader range of companies which would not previously have had access to BES funds.
  2. There are certain activities excluded from the scheme. These include the following activities which are deemed to be ineligible:
  • Dealing in commodities, futures, securities or other financial assets.
  • Financing activities
  • Professional service companies.
  • Dealing in or developing land.
  • Forestry.
  • Operating, or managing hotels, guesthouses, etc. (* allowable from 1st Jan 2013).
  • Operations in the coal industry, steel or shipbuilding sectors.
  • The production of a film. (within the meaning of section 481TCA 1997)

 

A qualifying Company must meet the conditions of Paragraphs 5 and 6, of Article 21 of Commission Regulation (EU) 651/2014, in respect of EIIS funds raised with effect from 13th October 2015. Part 5 “States Eligible undertakings shall be undertakings which at the time of the initial risk finance investment are unlisted SMEs and fulfil at least one of the following condition”

  1. “they have not been operating in any market”
  2. “they have been operating in any market for less than 7 years following their first commercial sale”.
  3. “they require an initial risk finance investment which, based on a business plan prepared in view of entering a new product or geographical market, is higher than 50 % of their average annual turnover in the preceding 5 years”

Part 6 states “The risk finance aid may also cover follow-on investments made in eligible undertakings, including after the 7 year period mentioned in paragraph 5(b), if the following cumulative conditions are fulfilled”

  1. “the total amount of risk finance mentioned in paragraph 9 is not exceeded”
  2. “the possibility of follow-on investments was foreseen in the original business plan”.
  3. “the undertaking receiving follow-on investments has not become linked, within the meaning of Article 3(3) of Annex I with another undertaking other than the financial intermediary or the independent private investor providing risk finance under the measure, unless the new entity fulfils the conditions of the SME definition”.

Advantages of EIIS Funding.

The EII scheme can be an attractive way of raising funds for growth, as it enables companies to raise funds from passive investors. As well as the immediate cash-flow benefits, companies will also benefit from the following;

  • Fixed cost of finance for four years.
  • Existing shareholders retain control of the business.
  • EIIS Shares are non-participating, (with a capped maximum value).
  • EIIS Shares have no voting rights. (thus no interference at AGM).
  • EIIS Investment does not appear as debt on the Company balance sheet.
  • No capital repayments until the end of the 4 year investment period.
  • EII status may enable other forms of funding. (e.g. Enterprise Ireland or bank funding).

 

The Cap Corporate Finance – EIIS Funding Solution

We at, Cap Corporate Finance, have a specialist team of Tax, Legal, Accounting and Investment professionals, with over 25 years’ experience in EIIS/BES funding . This specialist team will provide a full, turnkey solution, from initial appraisal, application for Outline and Full Revenue approvals, through to the preparation of a Placement Memorandum, raising and embedding of Capital, and the implementation of appropriate exit mechanisms.

We work directly with companies seeking to raise capital by way of a Private Placement, therefore, the process is uniquely designed to meet each company’s specific requirements.

It should be noted that, an applicant company, must satisfy certain qualifying criteria, in advance of, and throughout the term of, a qualifying investment. The rules pertaining to the EIIS Scheme are contained in Part 16 of the Taxes Consolidation Act 1997.

 

 

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