Last throw of the dice

Leo Varadkar, Tánaiste and Minister for Enterprise, Trade and Employment admitted that interest in the scheme has “waned”, while Paschal Donohoe, Minister for Finance, said EIIS had yet to reach its potential.

“Start-ups often end up going to London or California in search of funding,” Varadkar said. “We want to close this gap.”

The downward drift is visible in the latest statistics available from Revenue. It approved just 37 companies for the scheme in 2018, compared with 209 in 2016, and down from 232 when EIIS was established in 2011. Investor interest has also decreased, falling to 1,137 in 2018 from 1,423 in 2011. Interest has picked up since 2018, however, according to scheme promoters, following reforms that allowed all the tax relief to be claimed upfront and that increased the limits to let companies raise up to €5 million a year in EIIS funding. The ceiling for investors was doubled to €500,000, although they must commit for seven years to qualify for this higher amount.

Donohoe announced another clutch of reforms in Budget 2022, including an extension of EIIS until at least the end of 2024. The big breakthrough will be the relaxation of regulations to encourage more fund providers into EIIS, although details will not be known until the Finance Bill is published this week.

The hope is that the budget changes will drop barriers to entry by allowing venture capital funds and other investment vehicles to sign up for the scheme without having to seek separate authorisation as EIIS providers from the Central Bank of Ireland.
 

More fund providers should boost interest in EIIS from businesses looking for money and taxpayers looking to invest, according to Sinéad.

“The legislation sets a high bar for companies when self-certifying that they qualify for EIIS,” she adds. “Funds can assist with this assessment, which is challenging and costly for companies to do on their own.”

Another change announced by Donohoe will scrap a requirement that delays tax relief for EIIS investors until at least 30 per cent of their money has been put to work. “This is off-putting for the investors and a huge administrative burden for early-stage companies,” she notes.

“They must track every penny of the EIIS funding they spend because tax certificated can only be issued to investors when companies reach the 30% threshold.”

The Budget also signalled reforms to facilitate follow-on EIIS funding for companies that have already availed of the scheme. Under the existing rules, first-round investors run the risk of being locked in until those who invested in subsequent rounds are ready to exit their EIIS investments, which must be held for at least four years.

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