Revenue Note for Guidance

489 The relief

Summary

Section 489 provides for relief under the Employment and Investment Incentive Scheme to an individual who subscribes for eligible shares in a qualifying company, where the share capital raised will be used by the qualifying company-

for the purpose of carrying on “relevant trading activities” or research and development, and
for the creation or maintenance of employment in the company.

Relief in respect of thirty fortieths (or 75%) of the amount subscribed by an individual will be given in the year of assessment in which the shares are issued once-

in the case of a company which had commenced relevant trading activities at the time the eligible shares were issued, the company has carried on those activities for 4 months, or
in the case of a company which had not commenced relevant trading activities at the time the eligible shares were issued, the company—
- begins to carry on relevant trading activities within 2 years after that time, or
- expends not less than 30 per cent of the money subscribed for the shares on research and development activities which are connected with and undertaken with a view to the carrying on of the relevant trading activities.

Relief in respect of ten fortieths (or 25%) of the amount subscribed by an individual will be given in the fourth year following the issue of the shares provided—

Both—
- the number of qualifying employees in the company has increased between the year of assessment preceding the issue of the shares and the year of assessment in which the relevant period of 3 years ends, and
- the average basis pay rate for qualifying employees has not been reduced in that same period, except in the case of a general pay reduction which applied to employees generally,
  or
the amount of expenditure incurred by the company on research and development is increased.

This section shall only apply where the eligible shares are issued on or before 31 December 2020.

As this relief is included in Part 1 to the table in section 458, the general provisions relating to personal allowances/reliefs contained in sections 458 to 460 apply for the purposes of relief under this Part. These provisions relate primarily to the need to make a claim for relief and submit a return of income.

Details

Application

(1) The relief is available where —

(1)(a) a qualifying individual (section 492) subscribes for eligible shares in a qualifying company (section 494),
(1)(b) the shares are issued for the purpose of
- raising money for relevant trading activities (section 488) which is being carried on by the qualifying company,
- in the case of a company that has not commenced to trade, in incurring expenditure on research and development activities
  or
- in the case of a company that owns and operates a qualifying nursing home for the purposes of enlarging the capacity of the nursing home.

The use of the money will contribute to the creation or maintenance of employment in the company.

Relief as deduction from income

(2) Subject to being an investment in a designated fund the relief is given as follows:

by means of a deduction equal to thirty fortieths of the amount subscribed for eligible shares from the individual’s total income in the year of assessment in which the shares are issued. This part of the relief is subject to the high earners restriction.

subject to satisfying the requirements of subsection (10) by means of a deduction equal to ten fortieths of the amount subscribed for eligible shares from the individual’s total income in the year of assessment following the date on which the relevant period ends.

Investments through designated funds

(3) Where a EII investment is made through a fund designated by the Revenue Commissioners under section 506 and the shares in respect of which the investment are made are issued in the year of assessment following the year in which the investment is made in the fund, the investor may elect by notice in writing to the inspector to have the relief due given in the year of assessment in which the investment is made rather than in the year in which the shares are issued.

(3A) Where an investment through a fund was made in the period from 1 January 2014 to 31 December 2014 and the fund invests in shares in the month of January 2016, then, notwithstanding subsection (3), relief will be available either in the 2014 or 2016 year of assessment.

Claims

(4) The relief must be claimed and is not allowed —

(a) in the case of a company that had commenced relevant trading activities at the time the eligible shares were issued, unless and until the company has carried on those activities for 4 months.

(b) If the company is not carrying on qualifying trading activities at the time the shares are issued, the relief is not allowed unless the company —

begins to carry on the relevant trading activities within 2 years of the time the shares are issued.
expends not less than 30 per cent of the subscription money on research and development activities which are connected with and undertaken with a view to carrying on of the relevant trading activities,

Relief

(5) The relief is given once all the conditions for the relief have been satisfied.

Withdrawal of relief

(6) Relief will be withdrawn where an event occurs within the appropriate relevant period which results in the claimant not being entitled to relief.

Bona fide winding-up

(7) Where a company carries on a qualifying trade for a period which is less that the stipulated 4 month period required by subsection (4)(a), relief is not to be denied where it can be shown that the company was wound up or dissolved for genuine commercial reasons and not as part of a scheme or arrangement the main purpose, or one of the main purposes, of which was the avoidance of tax.

Capital gains tax

(8) Subject to section 504 (which deals with capital gains tax on the disposal of shares) any relief granted is not taken into account in calculating any future capital gains tax which may arise on the disposal of shares.

Restriction of relief

(9) “distribution” has the same meaning as in the Corporation Tax Acts.

Relief is denied in respect of amounts subscribed for shares in a company where the shareholder or a person connected with the shareholder is either —

assured of recovering part or all of the capital subscribed, other than a distribution,
or
assured of receiving an agreed dividend.

A shareholder is assured of recovering capital invested or of receiving a dividend where by virtue of an agreement, arrangement or understanding it could reasonably be considered that the risk element attaching to the investment is removed.

Restriction of relief

(10) Relief will not be available by virtue of subsection (2)(b) unless in relation to a qualifying company –

(10)(a) the employment relevant number exceeds the employment threshold number by at least one qualifying employee, and
the relevant amount exceeds the threshold amount by at least the total emoluments of one qualifying employee in the year of assessment in which the relevant period ends,
or
(10)(b) the amount of expenditure on research and development incurred by the qualifying company in the specified relevant period ending in the year of assessment preceding the year of assessment in which, in relation to the subscription for eligible shares, a relevant period ends, exceeds the amount of expenditure on research and development incurred by the qualifying company in the specified relevant period ending in the year of assessment preceding the year of assessment in which the subscription for eligible shares was made.

Commencement of relevant trading activities

(11) A company carrying on green energy activities shall be deemed to have commenced relevant trading activities when it has made an application for a grid connection agreement

Evidence

(12) The Revenue Commissioners may require the qualifying company to provide evidence as they consider necessary and may consult with such persons or body of persons as in their opinion may be of assistance to them, to enable them to verify that the conditions necessary for the claiming and granting of relief have been satisfied

Cessation of relief

(13) Relief is only available in respect of shares issued on or before 31 December 2020.

Relevant Date: Finance Act 2019