Employment Investment Incentive: raising money from private investors, family and friends with tax relief

What the investor gets back

Your company does not pay the investor anything. The investor deducts a share of the investment from their income for tax purposes, and that cuts their income tax bill.

Revenue's own example: an investor puts €100,000 into a company that has not started selling. They deduct €125,000 from their income. At the 40% rate of tax, that saves €50,000.

Those figures are ceilings. The investor only reaches them with enough income taxed at 40%. Relief they cannot use in one year can be carried forward.

There is a catch on the way out. If the shares are later sold at a loss, the investor gets no capital gains tax relief for the loss.

Which companies can use it

• The company is incorporated and tax resident in Ireland, another EEA state or the UK, and trades from a fixed place of business in Ireland.
• It is a micro, small or medium-sized enterprise: fewer than 250 staff, with turnover of no more than €50 million or a balance sheet of no more than €43 million.
• It is not listed on a stock exchange and is not controlled by another company.
• It holds a tax clearance certificate, and all of its issued shares are fully paid up.
• It is not a business in financial difficulty, as the EU State aid rules define that.

To raise a first round, the company must have made no commercial sale yet, or be less than 10 years from incorporation, or be less than 7 years from its first commercial sale.

Revenue applies that test to the company and to businesses linked to it, including a sole trade the owner ran before. Its example is a farmer of over twenty years who moves the farm into a new company. That company cannot raise a first round.

An older company can still raise an expansion round to enter a new product or geographic market, if the amount is more than 50% of its average annual turnover over the previous five years. Revenue's example of a new market is a Dublin coffee shop that opens in Donegal.

Who cannot use it

Sole traders and partnerships cannot use it, because the investor has to buy shares. You would first have to weigh up trading through a company against trading in your own name.

The company must exist wholly to carry on a qualifying trade. These activities do not qualify:

• professional services: medical, dental, optical, hearing and veterinary; architects and surveyors; accountancy, audit, tax and finance; legal services; geological services
• dealing in or developing land
• dealing in shares, securities, commodities or other financial assets, and financing activities
• hotels, guest houses and self-catering accommodation, unless Fáilte Ireland has approved a three-year development and marketing plan for the business
• forestry, film production, coal, steel and shipbuilding
• one-off deals that are not an ongoing trade

An EII investor must not be connected with the company, from two years before the shares are issued until four years after. Broadly, that rules out anyone who already holds shares, and their spouse, civil partner, parents, children, brothers and sisters. A director or employee is also connected unless all they receive from the company is reasonable pay and expenses.

Family money: the Start-up Capital Incentive

The Start-up Capital Incentive is the exception for family. It gives the same relief to relatives of the people who already own shares: a husband, wife or civil partner, a parent or grandparent, a child or grandchild, a brother or sister.

• The company must be a micro-enterprise: fewer than 10 employees, and turnover or a balance sheet of no more than €2 million.
• It must exist only to carry on a new venture. A business taken over from someone else does not count.
• It began trading, or preparing to trade, no more than 7 years before the shares are issued.
• It has no partner or linked businesses.
• It can raise no more than €500,000 this way over its lifetime.

The founder cannot use it for their own money. In Revenue's example, a founder's parents and siblings claim relief on the €400,000 they invest, but the founder gets none on his own €100,000. A founder should look at the refund of PAYE tax for people who leave a job to start a company.

Very few companies use the family scheme. In 2023, 10 investors put in €0.6 million between them.

What the company has to do

1. Write a business plan before you raise the money. Revenue expects details of products, sales and profitability, how the money will be used, and cashflow projections. It must also provide for any later rounds. You can start from a plan laid out under the headings funders ask for.
2. Issue new shares for cash. They cannot carry preferential rights to a dividend or on a winding up, and there can be no side agreement that protects the investor from losing the money.
3. File the Return of Qualifying Investments (the RICT return) through ROS within four months of the end of the tax year in which the shares were issued. Report the investment in the corporation tax return too.
4. Filing generates a Statement of Qualification for each investor. Give it to them by 31 December of the year after the shares were issued. They claim the relief on their own Form 11 or Form 12, and cannot claim without it.
5. Spend the money on the trade within four years, and keep bank statements and invoices to show where it went.

What goes wrong

• If the company issues a wrong statement, stops qualifying, or does not use the money for the trade, Revenue takes the relief back by raising a tax assessment on the company.
• A late or missing return costs €2,000, plus €50 for each day it stays outstanding.
• The money cannot be used to buy another company or a trade, to pay dividends, or to pay the fees for raising the finance.
• An investor who sells or gives away the shares within four years loses some or all of the relief.

We do not give tax advice. The rules are long and most mistakes land on the company. Have an accountant or tax adviser check the round against Revenue's manuals before any shares are issued.

In 2023, 3,323 investors put €141.9 million into 195 companies under EII. Much of that comes through funds and platforms, including crowdfunding sites that sell shares to hundreds of small investors and private individuals who back early companies with their own money.

Common questions