The Employment & Investment Incentive Scheme (EIIS) explained.
The Employment & Investment Incentive Scheme is a tax-incentivised investment. It allows personal investors to invest in qualifying small to medium sized Irish businesses. Investors can deduct the cost of their qualifying investment from their total income, for income tax purposes. That’s right, this is a relief against rental income also. Alongside pension contributions, it is one of the few remaining sources of income tax relief still available. The EIIS can be an attractive option to those with tax liabilities from rental income which is non-pensionable, higher earning employees, proprietary directors or business owners. Those, who find themselves having to draw a higher salary, have maxed out on their personal pension contributions or would simply like to reduce their personal income tax liability further. An individual can obtain tax relief in the year of the investment from PAYE earnings, Rental Income and ARF income.
An individual investor can invest a maximum of €150,000 in any one calendar year. In doing so, will receive tax relief of 40% of their investment, in two tranches. 30% tax relief in year 1, with a further 10% tax relief in year 4 provided certain employment or development criteria are met.
This EIIS tax relief scheme allows investors the opportunity to invest in high-growth potential Irish businesses. Sectors such as Healthcare, Retail, Renewable Energy, Technology and Telecommunications are generally most popular. While start-up companies are carefully selected and due diligence carried out, there is obviously no guarantee an investment in any business venture will be successful. That said, EIIS schemes are proving to be an integral part of an overall investment portfolio for many higher net-worth investors.
Apart from the investment itself which is tax deductible, there is also a once-off set-up fee paid to the promoters. This can typically be up to 3%.
So, an example of an investment of €50,000 and how the tax relief works is as follows;
- Investment Amount €50,000
- Plus, Once-off set up Fee €1,500
- Total Investment Cost €51,500
- Initial Tax Relief @ 30% €15,000
- Final Tax Relief @ 10% €5,000
- Net Cost to Investor €31,500
- Potential Return assuming overall growth of 20% €60,000
- Less Net Cost of Investment €31,500
- Total Gain incl. Tax Relief €28,500
- Less Capital Gains Tax €2,386
- Net Gain for Investor €26,114
Note: Capital Gains Tax is calculated on the overall return of €60,000 less the cost of the investment, in this case €51,500 less the annual CGT exemption of €1,270 and then taxed @ 33%
There are some quite attractive EIIS schemes still available. If you would like further information, you can contact us here at Lifestyle Financial Planners for more details.
A Certified Financial Planner will be able to talk you through EIIS schemes in more detail to establish if they may be a worthwhile fit for you. We would be more than happy to look at your personal situation and provide some exciting investment options. To schedule your free Discovery Meeting consultation, contact Paul today at firstname.lastname@example.org
Please share this blogpost if you think it has been informative or might help some other higher net-worth personal investors you know.
Lifestyle Financial Planners offer tax-efficient, wealth management, retirement and estate planning solutions to our clients. Paul is a Certified Financial Planner CFP® and holds a Masters Degree from UCD in Financial Services and Risk Management.
Tel: 096-75951 Mob: 086-8053755, www.lifestylefinancialplanners.ie
The information contained in this article is for general information only. It should not be used as the basis for any form of agreement or advice. We recommend readers seek separate tax and legal advice where necessary. This information does not take into account your own particular circumstances. Errors & Omissions Accepted. Investment funds can fall as well as rise.
Lifestyle Financial Planners Ltd trading as Lifestyle Financial Planners is regulated by the Central Bank of Ireland