The EIIS has been an important funding source for start-up companies as well as expanding SMEs since being introduced in 2011. The Relief has been revised many times since then. Below we provide a high-level summary of some of the most significant recent changes, including Finance Act (“FA”) 2023 updates.

1. Finance Act 2018 - Self-Certification

Previously, to claim EIIS, the applicant company was required to apply to Revenue for advance approval that they meet the conditions of the Relief, prior to issuing EIIS shares. FA 2019 introduced ‘self-certification’ which requires that the applicant company make an assessment as to whether they comply with the conditions of the Relief. The applicant company issue a Statement of Qualification (“SOQ”) to investors, within 4 months of the end of the year in which shares are issued, confirming the company’s view that they are in compliance with the conditions necessary to qualify for the Relief.

2. Finance Act 2019 – Immediate Relief

Previously Relief claims had been apportioned, 30/40ths in the year of investment, with the final 10/40ths claimed in the fourth year of the investment. The Relief is now claimable in full in the year of investment, for shares issued after October 2019. 

3. Finance Act 2023

The recent amendments, which take effect from 01 January 2024, introduced a further overhaul of the Relief. The EIIS changes are intended to simplify key aspects of the Relief, as well as stimulate additional investment. However, so many alterations in quick succession greatly complicate the guidance on the area and will no doubt result in further difficulties for application companies ‘self-certifying’.

3.1. Rate Changes for EIIS

Differing rates of Relief will apply, depending on the eligibility criteria the investee company satisfies. The new Relief rates range from 20% - 50% based on how early in the lifespan of the business the investment is made.

1. Relief is increased to 50% in respect of “initial risk finance”, i.e. investments in companies which have not previously operated in any market.
2. Relief applies at 35% on “initial risk finance”, i.e. companies within 7 years of their first commercial sale or within 10 years of incorporation.
3. Where investments are made indirectly via a financial intermediary Relief applies at 30% in all instances.
4. Relief applies at 20% on “expansion risk finance”, which shall only be a qualifying investment where it is based on a business plan which provides for the new product or geographic market the company aims to explore. The funding requirements are relaxed for environmentally sustainable businesses.
5. Relief also applies at 20% to “follow-on risk finance”, where companies have already raised investment under an incentive scheme. The current investment must have been provided for in the business plan upon which the initial investment was based. Previously business plans merely needed to “foresee” the prospect of future EIIS fundraising.

3.2. Company Stage

Previously companies were only eligible for EIIS where the investment was made within seven years of their first commercial sale. Relief is now extended to companies incorporated within the ten years prior to the investment.

3.3. Company Investment Threshold

The lifetime limit on the amount a company may raise under the scheme is increased to €16.5m, with investments received under the new angel investor relief also being included in the aggregation. The maximum a group can raise during a 12-month period is €5.5m.

3.4. Investor Annual Investment Threshold 

The annual limit on which investors can claim relief is increased to €500,000 for all investments under EIIS. Previously this limit was contingent on retaining the shares for seven years. 

3.5. Minimum Holding Period

The minimum holding period is now standardised to four years for all investments. 

3.6. Eligible Shares

EIIS can no longer have preferential rights to dividends or to a repayment of capital on a winding up. This restricts the Relief to investment in full (economic) risk ordinary shares. However, the shares remain redeemable. The shares are not required to be voting shares but may be converted to voting shares in the event that they are not redeemed, provided the terms of the conversion are reasonable.

4. EIIS Scheme Summary

The removal of the advance approval regime significantly reduced investor confidence and demand, as their entitlement to Relief is not Revenue-endorsed. Instead, investors now rely on self-certification from applicant companies, who are forced to warrant their compliance with the EIIS conditions. This greatly complicates the fundraising process. 

The recent changes imposed by FA 2023 simplify some key aspects of the Relief, which will hopefully re-invigorate investor demand. 

The adjusted relief rates are intended to steer investment towards early stage / start-up companies or those entering new markets. The upper 50% relief rate, now available in full in full in year of investment, in conjunction with increased investment thresholds should provide a strong investment stimulus. However, we are yet to see Revenue’s approach in practice, which may result in delayed uptake, particularly where there is ambiguity as to which Relief category is applicable.