How Awesome is the EIIS Scheme for Irish Investors?
“If you invest €10,000 in that company, you will receive €4,000 back in the form of a tax rebate, so you’re actually buying €10,000 worth of shares for €6,000. In other words, you can buy those shares at a 40% discount.”
That’s how the conversation started.
I was aware that the Government had some incentive scheme to encourage investors to buy shares in private companies, but I didn’t realise it was that good!!
“Are you serious? There is surely a catch somewhere”, I retorted.
“There’s no catch, although you only get €3,000 back from the Revenue in the first year, and only if you hold onto the shares for 4 years will you receive the final €1,000. The only other requirement is that the Company you are investing in has been approved by the Revenue to participate in this Scheme”, he said.
This scheme is known as the Employment and Investment Incentive Scheme, or EIIS for short.
As the name suggests, it was designed by the Irish Government to encourage investors to invest in small and medium sized Irish companies, which are basically the life blood of the country.
The best way to explain it is with an example.
Example of the EIIS in action
Fleet is an Irish person to person car sharing app which connects people who want to rent out their car with people who are looking to rent a car.
Fleet has been approved by the Revenue Commissioners in Ireland as an EIIS qualifying company, by virtue of its trading activities.
Fleet is raising €275,000 in return for 20% of the company on the Spark Crowdfunding platform.
An investor decides to invest €5,000 in Fleet.
Assuming the investor pays Income Tax in Ireland, he/she will be immediately entitled to a refund of €1,500 (i.e. 30% of €5,000) from the Revenue for making this investment.
If the investor holds the shares for 4 years, then they can reclaim an additional €500 (i.e. 10%) from the Revenue in that year.
What is the Net Effect of this?
Essentially, the investor is purchasing the shares at a 40% discount to the company valuation.
This is a very appealing tax benefit to investing in companies on the Spark Crowdfunding platform.
Further information on the EIIS Scheme may be found in this Guide from the Revenue Commissioners.