Employment Investment Incentive (EII) for funding your Irish Company

What to Expect When Using the Employment Investment Incentive Scheme (EIIS)

The Employer Investment Incentive (EII) can be a powerful tool for securing investment and driving growth for your Irish company. However, participating in the EII scheme requires meeting certain conditions and navigating a structured application process.
Here’s what you should expect:

1. Qualifying as an Eligible Business
Before you can avail of EII benefits, your company must meet specific criteria. Generally, EII is aimed at small and medium-sized enterprises (SMEs) in certain sectors. Your business should:

• Operate in a qualifying trade, such as manufacturing, tourism, technology, or research and development.
• Have fewer than 250 employees.
• Have an annual turnover of less than €50 million or balance sheet assets under €43 million.
• Not be under the control of another company.
• Be less than 7 years old, although companies beyond this threshold may still qualify under certain conditions.
• A company older than 7 years may still qualify if it is engaged in entering a new market or developing a new product.

2. Fulfilling Investment Conditions
Once eligible, you need to prepare for the investment process itself. This will include:

• Issuing shares to investors under the EII scheme.
• Ensuring that the investment is used for qualifying business activities, such as expansion, R&D, or job creation.
• Maintaining the shares for a minimum of four years to ensure investors can claim the full tax relief.
• Keeping a clear record of how the funds raised are utilised within the business.

3. Application Process
To start benefiting from the EII scheme, you will need to:

• Apply to the Revenue Commissioners for approval. This involves completing forms and providing financial statements, tax clearance certificates, and a business plan detailing how the funds will be used.
o Form EII 1: This form is used to apply for the initial EII relief.
o Form EII 2: After the investment is made, this form is submitted to finalise the relief for investors.

4. Revenue Compliance and Reporting Requirements
Once your business has received EII funding, there are ongoing obligations:

• Regular financial reports, detailing how the investment is being used and the performance of the business.
• Audits or reviews of your company’s financials and operations.
• Continued adherence to EII rules, including maintaining eligibility for the scheme to ensure that the investors receive their tax relief. This means keeping your business within the scope of the EII and properly using the funds for qualifying activities.

5. Investor Relations

In addition to managing compliance, you will need to communicate effectively with your investors. Since they are likely benefiting from tax relief, they will be interested in your business’s performance and how their investment is being used. It is important to provide regular updates and maintain transparency.

6. Exit Strategy and Tax Relief

DIFs are structured to generate returns for their investors, which means they are likely to seek an exit from their investment after the 4 year holding period has ended. This could happen through:
• An acquisition, where your company is sold to a larger entity.
• An IPO (Initial Public Offering), where your company goes public.
• A share buyback, where your company repurchases its shares from the DIF.
You should be prepared to work with the fund to develop a clear exit strategy and understand how it will affect your business in the future. Aligning your business goals with the fund’s exit expectations is key to ensuring a smooth partnership.

Accepting investment from a Designated Investment Fund (DIF) offers a valuable opportunity to form a long-term partnership that supports your company's growth. Rather than just a short-term infusion of capital, working with a DIF means gaining a partner who is invested in your success over several years. This sustained relationship provides consistent support, strategic guidance, and access to resources that can help accelerate your business's development.

The ongoing engagement ensures alignment of interests between your company and the fund, fostering a collaborative approach to achieving key milestones. Their oversight and involvement are not just about monitoring progress but about contributing valuable expertise and networking opportunities to ensure your business thrives.

While the Employer Investment Incentive (EII) scheme offers substantial benefits for attracting capital and growing your business, there are clear responsibilities and conditions that must be met.

Being well-prepared will make the process smoother and help you leverage the EII to its full potential.