How can trading companies attract investment through tax reliefs in Ireland?

For entrepreneurs and startups, attracting investment is vital. Ireland is creating an appealing environment for both investors and businesses with three significant tax reliefs aimed at drawing individual investors to trading companies.

For entrepreneurs and startups, attracting investment is vital. Ireland is creating an appealing environment for both investors and businesses with three significant tax reliefs aimed at drawing individual investors to trading companies:

  • Employment Investment Incentive (EII): This scheme allows investors to gain income tax relief on investments made into certain non-publicly traded companies, focusing primarily on micro, small, and medium enterprises. Starting in 2024, the minimum holding period for investments to qualify for relief under EII will be four years, and the investment limit will increase to €500,000. This relief is exempt from high earners' restrictions, making it attractive to high-income individuals by substantially lowering their tax burden.

Consider this scenario: an angel investor puts €100,000 into a qualifying business to purchase newly issued shares that represent more than 5% of the company's ordinary shares. In the first year, they can claim a 40% tax relief, reducing the effective cost of their investment to €60,000. If the company thrives and, after four years, the value of the investment doubles to €200,000, the investor would pay only 16% tax on the gains (rather than 33%). This results in a substantial net gain of €184,000 from an effective €60,000 investment.

  • The Start-Up Capital Incentive (SCI) is specifically crafted for early-stage micro-companies and is particularly suitable for family and friends of existing shareholders. It offers an income tax relief of up to 40%. This incentive requires that the funds be invested within two years of the company's incorporation, making it ideal for start-ups in their nascent stages.

  • The Start-Up Relief for Entrepreneurs (SURE) is tailored for individuals who have primarily earned PAYE income in the previous four years and are transitioning to entrepreneurship by starting their own business. This relief provides a tax refund on income tax previously paid if the entrepreneur invests in their new company and assumes a full-time role within it.

Key criteria include:

  1. Establishing a new company to engage in a qualifying trading activity.

  2. Taking up full-time employment in this new company as a director or employee within six months of making the investment.

  3. Investing cash (or providing a Director's Loan) to purchase new shares and holding at least 15% of the issued ordinary share capital.

For instance, if an entrepreneur invests €50,000 in their business in 2024, they could deduct this investment from their chargeable income for 2022, resulting in a tax refund of €20,000 under SURE.