Description
Public Consultation On The Role Of The Tax System In Encouraging Entrepreneurship
IRISH TAX INSTITUTE SUBMISSION
July 2015
Public Consultation on the
Role of the Tax System in
Encouraging Entrepreneurship
1
Table of Contents
About the Institute .................................................................................................................................. 2
Executive summary……………………………………………………………………………………………………………………………3
The main challenges facing entrepreneurs ......................................................................................... 3
Entrepreneurs - why they are important and deserve support ......................................................... 4
Steps taken on tax so far, to promote entrepreneurs ........................................................................ 5
Key recommendations ........................................................................................................................ 8
1. Raising Capital ......................................................................................................................... 8
2. Building a team of talented staff ............................................................................................ 8
3. Rewarding the initiative of job creators ................................................................................. 9
Detailed recommendations .................................................................................................................. 10
1. Raising Finance / Capital ........................................................................................................... 10
CGT rates ....................................................................................................................................... 11
Entrepreneur Relief ....................................................................................................................... 12
Employment and Investment Incentive (EII)................................................................................. 13
Start Up Relief for Entrepreneurs (SURE) ..................................................................................... 17
A new relief for loan investments ................................................................................................. 18
A Knowledge Development Box (KDB) for SMEs .......................................................................... 19
2. Building a team of talented staff .............................................................................................. 20
Share-based remuneration ........................................................................................................... 21
Impact of high marginal personal tax rates .................................................................................. 22
Employer PRSI ............................................................................................................................... 23
Mechanisms to attract mobile talent ........................................................................................... 24
3. Rewarding the initiative of job creators ................................................................................... 25
Discrimination of the self-employed............................................................................................. 25
Ease of paying tax ............................................................................................................................. 27
2
About the Institute
The Irish Tax Institute is the leading representative and educational body for Ireland’s AITI Chartered Tax
Advisers (CTA) and is the only professional body exclusively dedicated to tax. Our members provide tax
expertise to thousands of businesses and individuals in Ireland and internationally. In addition, many hold
senior roles within professional service firms, global companies, Government, Revenue and state bodies.
The Institute is the leading provider of tax qualifications in Ireland, educating the finest minds in tax and
business for over thirty years. Our AITI Chartered Tax Adviser (CTA) qualification is the gold standard in
tax and the international mark of excellence in tax advice.
A respected body on tax policy and administration, the Institute engages at the most senior levels across
Government, business and state organisations. Representing the views and expertise of its members, it
plays an important role in the fiscal and tax administrative discussions and decisions in Ireland and in the
EU.
3
Executive Summary
The Irish Tax Institute welcomes the opportunity to make a submission in response to the consultation on
Role of the Tax System in Encouraging Entrepreneurship.
The Institute has made representations to government on the tax environment for entrepreneurs and
SMEs (small and medium sized businesses) in our past four pre-Budget submissions. In that time, a
number of government initiatives have been undertaken to improve the environment for entrepreneurs,
within the fiscal parameters available:
? Action Plan for Jobs 2015
? The National Policy Statement on Entrepreneurship
? Budget 2014 - 10 Measures for small business
However, the environment remains challenging for start-up businesses and SMEs and if we want to
encourage more individuals to embark on the entrepreneur’s journey then further tax policy initiatives
are required.
The main challenges facing entrepreneurs
In carrying out our research for this submission, the Institute held detailed discussions with our members
who work at the coal face of the tax system for the thousands of SMEs, business owners and
entrepreneurs across Ireland. In addition, we met and spoke with a number of entrepreneurs and with
other bodies representing them.
In the course of these discussions we learnt that the key challenges facing entrepreneurs in Ireland today
fall under 3 main headings:
1. Raising capital to start and grow the business;
2. Building the best team to drive the business forward; and
3. Valuing and rewarding successful entrepreneurs.
4
The recommendations in this submission specifically address these three challenges which impact
particularly on entrepreneurs. In addition, we make a number of recommendations to improve the tax
administration environment generally, ease the tax compliance burden and address some of the
administrative barriers that currently exist.
Entrepreneurs - why they are important and deserve support
Entrepreneurs take risks, start businesses and create jobs. We know from the latest CSO figures available
in 2012 that SMEs then accounted for 99.7% of active enterprises and 68% of persons in private sector
employment
1
. Their contribution to Ireland’s economy and employment must be recognised, encouraged
and driven by ambitious overall government policy which includes a strong tax policy element.
Entrepreneurs and start-ups need a business environment within which they can thrive and grow – if we
can make this happen, it will benefit all aspects of Irish society.
Achieving a sustainable and ambitious policy framework requires entrepreneurs, professional advisers
and government to work collaboratively in its design, implementation and ongoing review. We have
some of the world’s best entrepreneurs in Ireland and it is important that we keep them, value them and
encourage others to join them by investing in Irish business.
There have been positive developments in entrepreneurship in Ireland over recent years but it is
important that we set more ambitious goals for ourselves:
1. Ireland has consistently ranked 17
th
(2015), 18
th
(2014) and 17
th
(2013) in the Global
Entrepreneurship Index over the last 3 years - by contrast the UK has risen from 14
th
in 2013 to
4
th
in 2015 (UK were 9
th
in 2014).
2. Ireland ranked 11
th
in the Global Innovation Index in 2014 (down from 10
th
in 2013). The UK
ranked 2
nd
in 2014, up from 3
rd
in 2013.
3. Client companies of Enterprise Ireland created 18,000 net jobs in the three years between 2012
and 2014.
Year New Jobs Net Increase in Jobs
2012 7,000 + 3,804
2013 18,033 5,442
2014 19,705 8,476
This is a strong contribution to the jobs target. However, in early 2015 An Taoiseach stated
the Government’s commitment to achieving full employment by 2018. This requires the
creation of 160,000 new jobs in a similar three year period and if this ambitious job creation
target is to be reached, the strategy must be competitive and focused.
4. The number of entrepreneurs starting new businesses is increasing again after a dip in 2014. But
if we look to the UK, even taking account of their much larger population (64.1 million in the UK
as compared with 4.5m in Ireland) and the different measurement bases below, there is
opportunity for further growth if we prioritise our tax policies.
1
CSO, Business in Ireland 2012 Report. Published in 2014.
5
Year Number of entrepreneurs
starting a new business
2
in
Ireland
3
Number of new
businesses started
in the UK
4
2011 24,000 440,600
2012 19,000 484,224
2013 32,000 526,447
2014 Not available 581,173
“[t]axation has an important role to play in developing Ireland’s entrepreneurship ecosystem to meet the
highest international standards and facilitating the growth of start-ups into enduring companies offering
sustainable long-term employment…
“The tax environment for entrepreneurs and investors in Ireland has become more challenging,
particularly when compared with the UK’s tax rates. It is critical that Ireland should remain competitive as
a location for both home-grown and internationally mobile entrepreneurs”.
5
“By driving implementation of the actions in the new National Entrepreneurship Policy Statement we will
double the jobs impact of start-ups in Ireland over the next five years, from 93,000 currently. We will
increase the number of start-ups, the survival rate and the capacity of startups to grow to scale, all by 25
per cent”.
6
“Certainly in any economy start-ups are the life’s blood of the economy in terms of creating new
opportunities and new jobs going forward and bringing new technologies in,”
7
“Angel investing is increasingly encouraged and supported by policy makers in many countries, as a way
to mobilize financial resources and entrepreneurial expertise towards dynamic new ventures”
8
Steps taken on tax so far, to promote entrepreneurs
Since the government has come into office, welcome measures have been introduced to stimulate
investment and improve the tax environment for SMEs:
? CGT Entrepreneur Relief was launched in 2013.
? An Employment and Investment Incentive (EII) was introduced to replace the Business Expansion
Scheme, (albeit that this relief is more restrictive than its predecessor and the result has been a
drop in SME investments made). After an initial period, the EII scheme was removed from the
High Earners’ Restriction and some elements of the relief were improved in Budget 2015.
? The Jobs Initiative in 2011 introduced a lower 9% VAT rate for certain tourism and personal
services. The lower rate of Employer PRSI was also temporarily halved.
? The VAT cash receipts basis was extended.
? The income tax Foreign Earnings Deduction was introduced and subsequently extended.
? The Special Assignee Relief Programme was introduced and then improved in Budget 2015.
? The Start Up Relief for Entrepreneurs (SURE) scheme was launched to replace Seed Capital Relief.
2
Some businesses have multiple co-founders and some founders may start more than one business in a year, so the
actual number of businesses created in any one year will not equate exactly with these figures.
3
As measured by the Global Entrepreneurship Monitor Ireland Reports.
4
As measured by Start-up Britain
5
The National Policy Statement on Entrepreneurship 2014
6
The Action Plan for Jobs 2015
7
Enterprise Ireland CEO Julie Sinnamon
8
OECD New Approaches to SME and Entrepreneurship Financing: Broadening the Range of Instruments, 2015.
6
? Start Your Business Relief (SYOB) was launched, which is a tax relief for the long term
unemployed who start a business.
? The R&D tax credit base year was removed.
? The Home Renovation Incentive was launched and subsequently extended.
These targeted steps have provided much needed support and contributed to job creation in certain
sectors. However, they have enjoyed mixed success in practice (for reasons that we elaborate on below)
and were introduced against the backdrop of a generally deteriorating tax environment in that same
period, with rate increases and band reductions across the board.
The Minister has taken very welcome steps to set out a Roadmap and plan for our corporation tax policy,
correctly addressing the challenges posed by global competitiveness in this area. However, the market
for international entrepreneurial investment is equally mobile and competitive and the tax environment
in Ireland for this type of business has become much less favourable in recent years.
? Marginal tax rates have increased from 46.5% up to 55% for entrepreneurs. These marginal
income tax rates are now amongst the highest in the OECD
? The High Earner’s Restriction was introduced and subsequently tightened and our effective tax
rates are now at levels approaching those in Sweden.
The PRSI ceiling for proprietary directors and the self-employed was removed. The lower rate of
employer PRSI of 4.25% on lower paid workers, which was introduced in the Jobs Initiative in 2011,
expired bringing the rate back to 8.5% from 2014. Employers are obliged to account for PRSI at a rate of
10.75% of wages for all workers earning more than €356 a week.
The capital taxes position has also deteriorated significantly, leading to uncertainty for investors:
? The Capital Gains Tax (CGT) rate has increased by 65% from 20% to 33%.
? The Capital Acquisitions Tax (CAT) rate has increased from 20% to 33% and thresholds have
approximately halved.
2008 2015
CGT rate 20% 33%
CAT rate 20% 33%
Value of transfer
which can be made
from parent to child
free of CAT
€521,208 €225,000
CGT Retirement
Relief
Relief available for any investor
over age 55
Age cap reduces the incentive
to pass on business after age 66
At the same time as these tax increases which impact entrepreneurs and their employees, VAT rates have
increased from 21% to 23%, which is the fourth highest rate in the EU.
During the difficult economic conditions of the past 7-8 years, entrepreneurs and the self-employed have
contributed hugely to the consolidation of our fiscal position through our highly progressive tax system
right across the board as evidenced at Figure 4.
7
Source: IBEC Report “Debunking Irish Income Tax Myths” September 2014
Now, as economic conditions improve, this vital group of people who drive jobs and innovation need to
see some reward for their endeavours and a pathway to more sustainable levels of taxation before we
lose them to competing jurisdictions such as the UK.
Irish v UK Comparison for Investors
? An Irish SME technology company seeks investment to fund its expansion.
? It sources funding from two equity investors, one Irish-based and one UK-based
The following table illustrates the tax analysis for each investor over a 5-year holding
period:
Irish resident investor UK resident investor
Marginal tax rate on
interest/dividend income
55% 45%/30.56%*
Tax rate on exit after 5
years
33% 10%**
* Currently the marginal rate on interest is 45%. The marginal rate on dividends is 30.56%.
**Assuming the investor qualifies for Entrepreneurs’ Relief. If investment is made through
EIS Scheme then disposal will be exempt from CGT.
8
Key recommendations
1. Raising Capital
? A roadmap is required in Budget 2016, similar to the Corporation Tax Roadmap, outlining a route
for phased reductions in Capital Gains Tax (CGT) rates, to provide certainty and assurance for
investors.
? A clear and targeted lower CGT rate of 10% on entrepreneurial gains is required. A 10% rate
should apply to the disposals of investments in certain business assets and shares, once certain
holding-requirements are met. A deferral mechanism should also be in place so that where the
proceeds of a disposal are reinvested in another qualifying business, the 10% CGT would be
“rolled over” and would not be due for payment until the subsequent acquisition is disposed of.
? Important changes are needed to make the Employment and Investment Incentive (EII) an
effective tool for encouraging start-up investment:
o The €150,000 annual investment limit for individuals is restricting investment that would
otherwise be available and needs to be increased.
o The removal of EII from the High Earner Restriction appears to have increased
investment levels and this position should be confirmed as a permanent measure.
o Full personal tax relief should be available in the year of investment because staggering
the relief is significantly restricting its attractiveness when comparing these high risk
investments with other safer options.
o A review of the detailed technical restrictions (outlined below) is required.
o A review of the tax treatment on inheritance is also required.
? Start Up Relief for Entrepreneurs (SURE)
o The tax relief should be available upfront when the start-up business requires the cash
to invest in the business, rather than after the investment has been made.
o All tax payers should be entitled to avail of SURE – denying the relief to previously self-
employed individuals is unfair and closes the start-up option to many individuals who
would otherwise embark on this journey.
? A targeted tax relief is required for individuals making loan capital investments in SMEs, to
provide important alternative sources of funding.
? SMEs require a Knowledge Development Box that imposes low compliance costs and provides
certainty of treatment for them. As broad a definition as possible is needed for assets which are
functionally equivalent to “patents”.
2. Building a team of talented staff
? A tax effective share incentive regime is urgently needed for both start-ups and growing SMEs to
enable them attract the key staff they need to drive their business through the initial early years
(when so many businesses can fail). This is particularly important given our environment of very
high personal taxes for employees. We would like to see a new regime introduced similar to the
UK Enterprise Management Incentive regime. In this regime no income tax is payable on the
exercise of share options by employees of qualifying companies. The employee is only liable to
CGT when they dispose of the underlying shares.
? A clearly articulated strategy is required outlining the phased reduction of the 52% marginal tax
rate for all taxpayers and not limited only to those taxpayers earning less than €70,000. High
performing individuals are core to the success of start-up business and we must ensure that their
cash-in-hand remuneration is competitive in a very tight global market for their services.
? Employer PRSI is a major cash flow cost for employers and can delay and even prevent the hiring
of those first staff for a new business. Other jurisdictions have introduced relief for employers
who increase their net headcount and similar measures should be introduced in Ireland.
? There is a need to assess how attractive our regime is in attracting mobile talent and high-
performing diaspora to indigenous businesses to help them grow and succeed. We would like to
9
see a relief mechanism, similar to the SARP, introduced aimed at attracting talent to indigenous
Irish businesses. To be effective, this relief should be available to new hires as well as assignees.
? We would also like to see a form of SARP relief introduced which is aimed at attracting research
leaders in areas of national strategic importance under the Science Foundation Ireland Research
Professorship Programme.
3. Rewarding the initiative of job creators
? Entrepreneurs are a small minority of taxpayers who generate new business and drive the jobs
agenda. We should celebrate their contribution to our economic recovery and demonstrate our
commitment to valuing this contribution by removing the tax discriminations that currently
impact them:
o The additional 3% USC is a penalty on entrepreneurship and should be abolished in
Budget 2016. The marginal tax rate for the self-employed should be the same as the rate
for employees.
o Our aim should be to extend the PAYE tax credit to all income earners, even if this can
only be achieved in clearly signalled stages.
10
Detailed recommendations
1. Raising Finance / Capital
Finance is the lifeblood of SMEs and businesses of all sizes continue to struggle to access sufficient
finance to develop and grow.
The Government has made welcome efforts in recent years to assist SMEs in raising finance including the
package of measures introduced in Budget 2014. The Strategic Banking Corporation of Ireland (SBCI) was
also established to
“provide €800 million over 2 years of additional funding” for SMEs and “to intensify competition
within the SME finance market, which has become over-concentrated”
In spite of these efforts, SMEs in Ireland have faced, and continue to face, significant challenges when
trying to raise finance. As the Action Plan for Jobs 2015 notes,
“oth pre- and post-crisis, Irish SMEs are among the most reliant on bank financing in Europe.
Consequently Irish SMEs have been disproportionately exposed to the weaknesses in the banking
sector”.
Given the difficulties of obtaining bank finance in the current environment, the importance of equity
finance for SMEs has also been recognised repeatedly by the Government. As the Action Plan for Jobs
2015 notes:
“Notwithstanding recent improvements, the area of credit for enterprise requires ongoing
attention given the stated ambition of developing a more diversified and competitive financial
system capable of financing the growth potential of Irish SMEs”.
“As part of broadening the financing mix for SMEs, there is a need to encourage firms away from
the current high level of reliance on debt financing towards a greater use of equity to fund
investment….. the ESRI indicates that there are opportunities to expand the use of equity
financing by the more domestically orientated cohort of Irish SMEs”
While private sector financing may be provided to SMEs through institutional investors and venture
capital funds, we believe that the private capital held by individuals who have the means to invest in Irish
businesses, could provide another vital source of funding. The total amount held on deposit in Irish banks
by households at the end of April 2015 was €91.9 billion. If even a small percentage of this capital was
harnessed for productive investment in small, high-potential businesses, it would have significant
benefits for the Exchequer.
There is an internationally competitive market for investors’ funds. Irish investors are very mobile and
they can make clear comparisons of the return on their investments across jurisdictions. In addition, Irish
investors have a strong propensity for investing in property over other, riskier, investments.
“Irish high net worth individuals are likely to hold the majority (55%) of their wealth in property,
more than any other country globally”.
9
9
Barclays Wealth Insights Report, 17 June 2013
11
Investors who choose to invest their funds in SMEs and start-ups generally take on much more significant
risk than those who invest in property or “blue-chip” companies. In order to support those investors who
are prepared to take these risks, it is important that tax policy encourages this type of active investment
in circumstances where jobs are likely to be created.
So what changes to the tax policy environment is the Institute seeking, to help promote investment by
entrepreneurs?
CGT rates
Background
Starting a business or investing in a trading company is a high risk investment, particularly in comparison
to investing in property or any asset backed investment. Irish people have typically chosen to invest in
property rather than active businesses. Tax measures such as the recent 7 year CGT exemption have
encouraged a focus on property investments in recent years.
The rate of CGT impacts the after-tax reward from a successful investment and therefore has a knock on
impact on investment decisions. The potential increase in value of a business that is successful is often
the key factor which attracts entrepreneurs and investors to risk their money in a trading business.
Ireland’s CGT rate has increased from 20% in 2008 to 33% currently. In previous periods where Ireland
had a high CGT rate, a roll-over relief for investments in active businesses was available and this relief
was abolished as the CGT rate was lowered.
Issue
Ireland’s high CGT rates are acting as a significant disincentive to making investments in active trading
businesses which are inherently risky.
Recommendation
A Budget 2016 roadmap outlining phased reductions in CGT rates would provide certainty and assurance
for investors.
12
Entrepreneur Relief
Background
Entrepreneur Relief was introduced in Budget 2014 with the objective of reducing the high CGT cost for
successful entrepreneurs. However, the measure introduced has some significant limitations and was
further restricted by changes introduced in Budget 2015. The relief is effectively only available where an
entrepreneur makes two consecutive successful entrepreneurial investments.
Issue
Ireland competes with other countries as a location for start-up investment. Investment capital is very
mobile and other jurisdictions have increasingly competitive offerings. The current Entrepreneur Relief is
very restrictive and complex. The benefits of the regime are often uncertain and crystallise too far into
the future to influence decisions made today.
These restrictions are exacerbated by the availability of a simpler, clearer and more attractive relief in the
UK (see spotlight on the UK relief below).
Spotlight on the UK CGT Entrepreneurs’ Relief
The UK Government’s stated ambition is “for the UK to be the best place in Europe to start, finance and
grow a business” and Entrepreneurs’ Relief is a critical tool in pursuing this strategy.
Entrepreneurs’ Relief was introduced in the UK from 2008 and it was aimed at encouraging individuals to
start a business and invest in it. The relief operates by reducing the amount of CGT payable by an
individual on a disposal of qualifying business assets, as long as certain conditions have been met
throughout a one-year qualifying period either up to the date of disposal or the date the business ceased.
Qualifying capital gains for each individual are subject to a lifetime limit of £10 million (for disposals on or
after 6 April 2011). It is notable that this lifetime limit has been increased three times since the relief was
introduced, increasing from an initial level of £1 million to the £10 million limit which applies now.
Qualifying gains are subject to CGT at a rate of 10%, instead of the normal UK rates of 18% and 28%.
Relief can be claimed on a disposal of qualifying business assets or shares in a “personal company” (i.e. an
individual holds at least 5% of the ordinary share capital and 5% of the voting rights).
Recommendation
A clear 10% CGT rate on entrepreneurial gains is required
A significantly revised and simpler Entrepreneur Relief is required so that entrepreneurial gains are taxed
at no more than 10%. A reform of this nature is essential if Ireland is to compete with countries such as
the UK for investment business.
To ensure the relief meets its target objectives, it could:
? Be limited to certain types of business assets and shares, and
? Require a minimum investment period of 3 to 5 years.
A relief like this would be very similar in nature to the UK relief which should minimise any State Aid
challenges arising. The attractiveness of this regime could be further enhanced by allowing payment of
the tax to be deferred where the proceeds on disposal are reinvested in other qualifying business assets
or shares within a certain timeframe. This would further encourage entrepreneurs to continue to invest
in productive businesses in Ireland.
13
Employment and Investment Incentive (EII)
Background
The EII provides income tax relief for individuals who make equity investments in qualifying trading
companies. Relief is granted in two tranches, 30% in the year of investment and a further 10% relief
after 3 years if certain conditions are met (this additional tranche of relief was previously available at 11%
prior to Budget 2015). There are a number of criteria that must be met by both the investor and the
company, in order for EII relief to apply:
? The company receiving the funds must carry out a qualifying activity.
? The funds must be used by the company for that qualifying activity.
? The investor must not control more than 15% of the company.
? There are limits on how much a company can raise and how much an individual can invest.
The EII was introduced in Finance Act 2011 to replace the Business Expansion Scheme (BES). Budget 2011
outlined that the rationale for replacing BES with EII was to boost job creation by SMEs and it was
anticipated that an extra €13 million of tax relief would be granted under the new scheme each year.
However, the introduction of the EII has actually resulted in a reduction in the level of tax relief being
granted to investors in Irish businesses, with a significant knock-on effect on the level of funds invested.
Year Relief Cost €m Funds Invested
€m (approx)
10
No. of investors
2011 BES 41 100 927
2012 BES 31.5 76.8 984
2012 (part of year) EII 4 13 352
2013 EII 12.3
11
41 1,006
2014 (provisional) EII 15.1 50 1,132
The table above demonstrates that although the number of people investing has increased, the total
level of EII funds invested in SMEs has significantly decreased (by 50% from 2011 levels).
One of the limitations with the EII as originally introduced was that the High Earners’ Restriction
effectively capped the amount of relief available to investors to such an extent that the relief was not
attractive – particularly considering the high risk profile of the investments involved. Finance (No. 2) Act
2013 temporarily removed the EII from the scope of the high earner restriction and a further review was
carried out in 2014. It appears from the provisional figures for 2014 available in the table above that this
change has contributed to some increase in investment levels and it is essential that this position is made
permanent.
Further changes were made in Finance Act 2014 (pending EU State Aid approval) to:
? Increase the amount of EII funds which a company can raise,
? increase the holding period by 1 year to 4 years, and
? include medium-sized companies in non-assisted areas and internationally traded financial
services.
10
Actual levels of funds invested through EII was not available at the time of writing and therefore these
figures are estimated based on the published Cost amounts.
11
The cost of the scheme that had been anticipated by Government was €54m – a clear demonstration that
the terms of the scheme are delivering sub-optimal investment levels.
14
Increase in investment limits in Finance Act 2014
EII Investment
Pre- Finance Act
2014
Post- Finance Act
2014*
Annual investment limit p.a
€2.5m
€4m
Lifetime investment limit €10m €15m
*pending State Aid Approval
The table below compares the attractiveness of our current EII with both the previous BES regime and
the two UK equivalents – the SEIS is a specific form of EII aimed at attracting investment into the smallest
businesses. One of the biggest differences between the Irish and UK regimes is the eligible investor limit.
Our €150,000 limit compared with the UK Stg £1m limit is one of the main restrictions on investment
here. Coupled with this, there is a CGT exemption on the sale of the shares in the UK, which does not
apply in Ireland. An effective 10% entrepreneurs’ relief in Ireland would reduce the impact of this
difference.
BES EII UK EIS UK SEIS
Rate of relief 41% upfront 30% in year 1 +
10% after 3
years
30% 50%
Company
investment limit
€2 million
lifetime limit
€10 million
lifetime limit
£5 million per 12
months. No
lifetime limit
Stg£150,000 lifetime
limit
Investor Limit €150,000 p.a.
(but subject to
High Earner
Restriction)
€150,000 p.a. Stg£1,000,000 Stg£100,000
Holding Period 5 years 4 years 3 years 3 years
Eligible
companies
Limited to
qualifying trade
and certain areas
Most trading
SMEs
Companies with
gross assets
< Stg£15 million &
Public Consultation On The Role Of The Tax System In Encouraging Entrepreneurship
IRISH TAX INSTITUTE SUBMISSION
July 2015
Public Consultation on the
Role of the Tax System in
Encouraging Entrepreneurship
1
Table of Contents
About the Institute .................................................................................................................................. 2
Executive summary……………………………………………………………………………………………………………………………3
The main challenges facing entrepreneurs ......................................................................................... 3
Entrepreneurs - why they are important and deserve support ......................................................... 4
Steps taken on tax so far, to promote entrepreneurs ........................................................................ 5
Key recommendations ........................................................................................................................ 8
1. Raising Capital ......................................................................................................................... 8
2. Building a team of talented staff ............................................................................................ 8
3. Rewarding the initiative of job creators ................................................................................. 9
Detailed recommendations .................................................................................................................. 10
1. Raising Finance / Capital ........................................................................................................... 10
CGT rates ....................................................................................................................................... 11
Entrepreneur Relief ....................................................................................................................... 12
Employment and Investment Incentive (EII)................................................................................. 13
Start Up Relief for Entrepreneurs (SURE) ..................................................................................... 17
A new relief for loan investments ................................................................................................. 18
A Knowledge Development Box (KDB) for SMEs .......................................................................... 19
2. Building a team of talented staff .............................................................................................. 20
Share-based remuneration ........................................................................................................... 21
Impact of high marginal personal tax rates .................................................................................. 22
Employer PRSI ............................................................................................................................... 23
Mechanisms to attract mobile talent ........................................................................................... 24
3. Rewarding the initiative of job creators ................................................................................... 25
Discrimination of the self-employed............................................................................................. 25
Ease of paying tax ............................................................................................................................. 27
2
About the Institute
The Irish Tax Institute is the leading representative and educational body for Ireland’s AITI Chartered Tax
Advisers (CTA) and is the only professional body exclusively dedicated to tax. Our members provide tax
expertise to thousands of businesses and individuals in Ireland and internationally. In addition, many hold
senior roles within professional service firms, global companies, Government, Revenue and state bodies.
The Institute is the leading provider of tax qualifications in Ireland, educating the finest minds in tax and
business for over thirty years. Our AITI Chartered Tax Adviser (CTA) qualification is the gold standard in
tax and the international mark of excellence in tax advice.
A respected body on tax policy and administration, the Institute engages at the most senior levels across
Government, business and state organisations. Representing the views and expertise of its members, it
plays an important role in the fiscal and tax administrative discussions and decisions in Ireland and in the
EU.
3
Executive Summary
The Irish Tax Institute welcomes the opportunity to make a submission in response to the consultation on
Role of the Tax System in Encouraging Entrepreneurship.
The Institute has made representations to government on the tax environment for entrepreneurs and
SMEs (small and medium sized businesses) in our past four pre-Budget submissions. In that time, a
number of government initiatives have been undertaken to improve the environment for entrepreneurs,
within the fiscal parameters available:
? Action Plan for Jobs 2015
? The National Policy Statement on Entrepreneurship
? Budget 2014 - 10 Measures for small business
However, the environment remains challenging for start-up businesses and SMEs and if we want to
encourage more individuals to embark on the entrepreneur’s journey then further tax policy initiatives
are required.
The main challenges facing entrepreneurs
In carrying out our research for this submission, the Institute held detailed discussions with our members
who work at the coal face of the tax system for the thousands of SMEs, business owners and
entrepreneurs across Ireland. In addition, we met and spoke with a number of entrepreneurs and with
other bodies representing them.
In the course of these discussions we learnt that the key challenges facing entrepreneurs in Ireland today
fall under 3 main headings:
1. Raising capital to start and grow the business;
2. Building the best team to drive the business forward; and
3. Valuing and rewarding successful entrepreneurs.
4
The recommendations in this submission specifically address these three challenges which impact
particularly on entrepreneurs. In addition, we make a number of recommendations to improve the tax
administration environment generally, ease the tax compliance burden and address some of the
administrative barriers that currently exist.
Entrepreneurs - why they are important and deserve support
Entrepreneurs take risks, start businesses and create jobs. We know from the latest CSO figures available
in 2012 that SMEs then accounted for 99.7% of active enterprises and 68% of persons in private sector
employment
1
. Their contribution to Ireland’s economy and employment must be recognised, encouraged
and driven by ambitious overall government policy which includes a strong tax policy element.
Entrepreneurs and start-ups need a business environment within which they can thrive and grow – if we
can make this happen, it will benefit all aspects of Irish society.
Achieving a sustainable and ambitious policy framework requires entrepreneurs, professional advisers
and government to work collaboratively in its design, implementation and ongoing review. We have
some of the world’s best entrepreneurs in Ireland and it is important that we keep them, value them and
encourage others to join them by investing in Irish business.
There have been positive developments in entrepreneurship in Ireland over recent years but it is
important that we set more ambitious goals for ourselves:
1. Ireland has consistently ranked 17
th
(2015), 18
th
(2014) and 17
th
(2013) in the Global
Entrepreneurship Index over the last 3 years - by contrast the UK has risen from 14
th
in 2013 to
4
th
in 2015 (UK were 9
th
in 2014).
2. Ireland ranked 11
th
in the Global Innovation Index in 2014 (down from 10
th
in 2013). The UK
ranked 2
nd
in 2014, up from 3
rd
in 2013.
3. Client companies of Enterprise Ireland created 18,000 net jobs in the three years between 2012
and 2014.
Year New Jobs Net Increase in Jobs
2012 7,000 + 3,804
2013 18,033 5,442
2014 19,705 8,476
This is a strong contribution to the jobs target. However, in early 2015 An Taoiseach stated
the Government’s commitment to achieving full employment by 2018. This requires the
creation of 160,000 new jobs in a similar three year period and if this ambitious job creation
target is to be reached, the strategy must be competitive and focused.
4. The number of entrepreneurs starting new businesses is increasing again after a dip in 2014. But
if we look to the UK, even taking account of their much larger population (64.1 million in the UK
as compared with 4.5m in Ireland) and the different measurement bases below, there is
opportunity for further growth if we prioritise our tax policies.
1
CSO, Business in Ireland 2012 Report. Published in 2014.
5
Year Number of entrepreneurs
starting a new business
2
in
Ireland
3
Number of new
businesses started
in the UK
4
2011 24,000 440,600
2012 19,000 484,224
2013 32,000 526,447
2014 Not available 581,173
“[t]axation has an important role to play in developing Ireland’s entrepreneurship ecosystem to meet the
highest international standards and facilitating the growth of start-ups into enduring companies offering
sustainable long-term employment…
“The tax environment for entrepreneurs and investors in Ireland has become more challenging,
particularly when compared with the UK’s tax rates. It is critical that Ireland should remain competitive as
a location for both home-grown and internationally mobile entrepreneurs”.
5
“By driving implementation of the actions in the new National Entrepreneurship Policy Statement we will
double the jobs impact of start-ups in Ireland over the next five years, from 93,000 currently. We will
increase the number of start-ups, the survival rate and the capacity of startups to grow to scale, all by 25
per cent”.
6
“Certainly in any economy start-ups are the life’s blood of the economy in terms of creating new
opportunities and new jobs going forward and bringing new technologies in,”
7
“Angel investing is increasingly encouraged and supported by policy makers in many countries, as a way
to mobilize financial resources and entrepreneurial expertise towards dynamic new ventures”
8
Steps taken on tax so far, to promote entrepreneurs
Since the government has come into office, welcome measures have been introduced to stimulate
investment and improve the tax environment for SMEs:
? CGT Entrepreneur Relief was launched in 2013.
? An Employment and Investment Incentive (EII) was introduced to replace the Business Expansion
Scheme, (albeit that this relief is more restrictive than its predecessor and the result has been a
drop in SME investments made). After an initial period, the EII scheme was removed from the
High Earners’ Restriction and some elements of the relief were improved in Budget 2015.
? The Jobs Initiative in 2011 introduced a lower 9% VAT rate for certain tourism and personal
services. The lower rate of Employer PRSI was also temporarily halved.
? The VAT cash receipts basis was extended.
? The income tax Foreign Earnings Deduction was introduced and subsequently extended.
? The Special Assignee Relief Programme was introduced and then improved in Budget 2015.
? The Start Up Relief for Entrepreneurs (SURE) scheme was launched to replace Seed Capital Relief.
2
Some businesses have multiple co-founders and some founders may start more than one business in a year, so the
actual number of businesses created in any one year will not equate exactly with these figures.
3
As measured by the Global Entrepreneurship Monitor Ireland Reports.
4
As measured by Start-up Britain
5
The National Policy Statement on Entrepreneurship 2014
6
The Action Plan for Jobs 2015
7
Enterprise Ireland CEO Julie Sinnamon
8
OECD New Approaches to SME and Entrepreneurship Financing: Broadening the Range of Instruments, 2015.
6
? Start Your Business Relief (SYOB) was launched, which is a tax relief for the long term
unemployed who start a business.
? The R&D tax credit base year was removed.
? The Home Renovation Incentive was launched and subsequently extended.
These targeted steps have provided much needed support and contributed to job creation in certain
sectors. However, they have enjoyed mixed success in practice (for reasons that we elaborate on below)
and were introduced against the backdrop of a generally deteriorating tax environment in that same
period, with rate increases and band reductions across the board.
The Minister has taken very welcome steps to set out a Roadmap and plan for our corporation tax policy,
correctly addressing the challenges posed by global competitiveness in this area. However, the market
for international entrepreneurial investment is equally mobile and competitive and the tax environment
in Ireland for this type of business has become much less favourable in recent years.
? Marginal tax rates have increased from 46.5% up to 55% for entrepreneurs. These marginal
income tax rates are now amongst the highest in the OECD
? The High Earner’s Restriction was introduced and subsequently tightened and our effective tax
rates are now at levels approaching those in Sweden.
The PRSI ceiling for proprietary directors and the self-employed was removed. The lower rate of
employer PRSI of 4.25% on lower paid workers, which was introduced in the Jobs Initiative in 2011,
expired bringing the rate back to 8.5% from 2014. Employers are obliged to account for PRSI at a rate of
10.75% of wages for all workers earning more than €356 a week.
The capital taxes position has also deteriorated significantly, leading to uncertainty for investors:
? The Capital Gains Tax (CGT) rate has increased by 65% from 20% to 33%.
? The Capital Acquisitions Tax (CAT) rate has increased from 20% to 33% and thresholds have
approximately halved.
2008 2015
CGT rate 20% 33%
CAT rate 20% 33%
Value of transfer
which can be made
from parent to child
free of CAT
€521,208 €225,000
CGT Retirement
Relief
Relief available for any investor
over age 55
Age cap reduces the incentive
to pass on business after age 66
At the same time as these tax increases which impact entrepreneurs and their employees, VAT rates have
increased from 21% to 23%, which is the fourth highest rate in the EU.
During the difficult economic conditions of the past 7-8 years, entrepreneurs and the self-employed have
contributed hugely to the consolidation of our fiscal position through our highly progressive tax system
right across the board as evidenced at Figure 4.
7
Source: IBEC Report “Debunking Irish Income Tax Myths” September 2014
Now, as economic conditions improve, this vital group of people who drive jobs and innovation need to
see some reward for their endeavours and a pathway to more sustainable levels of taxation before we
lose them to competing jurisdictions such as the UK.
Irish v UK Comparison for Investors
? An Irish SME technology company seeks investment to fund its expansion.
? It sources funding from two equity investors, one Irish-based and one UK-based
The following table illustrates the tax analysis for each investor over a 5-year holding
period:
Irish resident investor UK resident investor
Marginal tax rate on
interest/dividend income
55% 45%/30.56%*
Tax rate on exit after 5
years
33% 10%**
* Currently the marginal rate on interest is 45%. The marginal rate on dividends is 30.56%.
**Assuming the investor qualifies for Entrepreneurs’ Relief. If investment is made through
EIS Scheme then disposal will be exempt from CGT.
8
Key recommendations
1. Raising Capital
? A roadmap is required in Budget 2016, similar to the Corporation Tax Roadmap, outlining a route
for phased reductions in Capital Gains Tax (CGT) rates, to provide certainty and assurance for
investors.
? A clear and targeted lower CGT rate of 10% on entrepreneurial gains is required. A 10% rate
should apply to the disposals of investments in certain business assets and shares, once certain
holding-requirements are met. A deferral mechanism should also be in place so that where the
proceeds of a disposal are reinvested in another qualifying business, the 10% CGT would be
“rolled over” and would not be due for payment until the subsequent acquisition is disposed of.
? Important changes are needed to make the Employment and Investment Incentive (EII) an
effective tool for encouraging start-up investment:
o The €150,000 annual investment limit for individuals is restricting investment that would
otherwise be available and needs to be increased.
o The removal of EII from the High Earner Restriction appears to have increased
investment levels and this position should be confirmed as a permanent measure.
o Full personal tax relief should be available in the year of investment because staggering
the relief is significantly restricting its attractiveness when comparing these high risk
investments with other safer options.
o A review of the detailed technical restrictions (outlined below) is required.
o A review of the tax treatment on inheritance is also required.
? Start Up Relief for Entrepreneurs (SURE)
o The tax relief should be available upfront when the start-up business requires the cash
to invest in the business, rather than after the investment has been made.
o All tax payers should be entitled to avail of SURE – denying the relief to previously self-
employed individuals is unfair and closes the start-up option to many individuals who
would otherwise embark on this journey.
? A targeted tax relief is required for individuals making loan capital investments in SMEs, to
provide important alternative sources of funding.
? SMEs require a Knowledge Development Box that imposes low compliance costs and provides
certainty of treatment for them. As broad a definition as possible is needed for assets which are
functionally equivalent to “patents”.
2. Building a team of talented staff
? A tax effective share incentive regime is urgently needed for both start-ups and growing SMEs to
enable them attract the key staff they need to drive their business through the initial early years
(when so many businesses can fail). This is particularly important given our environment of very
high personal taxes for employees. We would like to see a new regime introduced similar to the
UK Enterprise Management Incentive regime. In this regime no income tax is payable on the
exercise of share options by employees of qualifying companies. The employee is only liable to
CGT when they dispose of the underlying shares.
? A clearly articulated strategy is required outlining the phased reduction of the 52% marginal tax
rate for all taxpayers and not limited only to those taxpayers earning less than €70,000. High
performing individuals are core to the success of start-up business and we must ensure that their
cash-in-hand remuneration is competitive in a very tight global market for their services.
? Employer PRSI is a major cash flow cost for employers and can delay and even prevent the hiring
of those first staff for a new business. Other jurisdictions have introduced relief for employers
who increase their net headcount and similar measures should be introduced in Ireland.
? There is a need to assess how attractive our regime is in attracting mobile talent and high-
performing diaspora to indigenous businesses to help them grow and succeed. We would like to
9
see a relief mechanism, similar to the SARP, introduced aimed at attracting talent to indigenous
Irish businesses. To be effective, this relief should be available to new hires as well as assignees.
? We would also like to see a form of SARP relief introduced which is aimed at attracting research
leaders in areas of national strategic importance under the Science Foundation Ireland Research
Professorship Programme.
3. Rewarding the initiative of job creators
? Entrepreneurs are a small minority of taxpayers who generate new business and drive the jobs
agenda. We should celebrate their contribution to our economic recovery and demonstrate our
commitment to valuing this contribution by removing the tax discriminations that currently
impact them:
o The additional 3% USC is a penalty on entrepreneurship and should be abolished in
Budget 2016. The marginal tax rate for the self-employed should be the same as the rate
for employees.
o Our aim should be to extend the PAYE tax credit to all income earners, even if this can
only be achieved in clearly signalled stages.
10
Detailed recommendations
1. Raising Finance / Capital
Finance is the lifeblood of SMEs and businesses of all sizes continue to struggle to access sufficient
finance to develop and grow.
The Government has made welcome efforts in recent years to assist SMEs in raising finance including the
package of measures introduced in Budget 2014. The Strategic Banking Corporation of Ireland (SBCI) was
also established to
“provide €800 million over 2 years of additional funding” for SMEs and “to intensify competition
within the SME finance market, which has become over-concentrated”
In spite of these efforts, SMEs in Ireland have faced, and continue to face, significant challenges when
trying to raise finance. As the Action Plan for Jobs 2015 notes,
“oth pre- and post-crisis, Irish SMEs are among the most reliant on bank financing in Europe.
Consequently Irish SMEs have been disproportionately exposed to the weaknesses in the banking
sector”.
Given the difficulties of obtaining bank finance in the current environment, the importance of equity
finance for SMEs has also been recognised repeatedly by the Government. As the Action Plan for Jobs
2015 notes:
“Notwithstanding recent improvements, the area of credit for enterprise requires ongoing
attention given the stated ambition of developing a more diversified and competitive financial
system capable of financing the growth potential of Irish SMEs”.
“As part of broadening the financing mix for SMEs, there is a need to encourage firms away from
the current high level of reliance on debt financing towards a greater use of equity to fund
investment….. the ESRI indicates that there are opportunities to expand the use of equity
financing by the more domestically orientated cohort of Irish SMEs”
While private sector financing may be provided to SMEs through institutional investors and venture
capital funds, we believe that the private capital held by individuals who have the means to invest in Irish
businesses, could provide another vital source of funding. The total amount held on deposit in Irish banks
by households at the end of April 2015 was €91.9 billion. If even a small percentage of this capital was
harnessed for productive investment in small, high-potential businesses, it would have significant
benefits for the Exchequer.
There is an internationally competitive market for investors’ funds. Irish investors are very mobile and
they can make clear comparisons of the return on their investments across jurisdictions. In addition, Irish
investors have a strong propensity for investing in property over other, riskier, investments.
“Irish high net worth individuals are likely to hold the majority (55%) of their wealth in property,
more than any other country globally”.
9
9
Barclays Wealth Insights Report, 17 June 2013
11
Investors who choose to invest their funds in SMEs and start-ups generally take on much more significant
risk than those who invest in property or “blue-chip” companies. In order to support those investors who
are prepared to take these risks, it is important that tax policy encourages this type of active investment
in circumstances where jobs are likely to be created.
So what changes to the tax policy environment is the Institute seeking, to help promote investment by
entrepreneurs?
CGT rates
Background
Starting a business or investing in a trading company is a high risk investment, particularly in comparison
to investing in property or any asset backed investment. Irish people have typically chosen to invest in
property rather than active businesses. Tax measures such as the recent 7 year CGT exemption have
encouraged a focus on property investments in recent years.
The rate of CGT impacts the after-tax reward from a successful investment and therefore has a knock on
impact on investment decisions. The potential increase in value of a business that is successful is often
the key factor which attracts entrepreneurs and investors to risk their money in a trading business.
Ireland’s CGT rate has increased from 20% in 2008 to 33% currently. In previous periods where Ireland
had a high CGT rate, a roll-over relief for investments in active businesses was available and this relief
was abolished as the CGT rate was lowered.
Issue
Ireland’s high CGT rates are acting as a significant disincentive to making investments in active trading
businesses which are inherently risky.
Recommendation
A Budget 2016 roadmap outlining phased reductions in CGT rates would provide certainty and assurance
for investors.
12
Entrepreneur Relief
Background
Entrepreneur Relief was introduced in Budget 2014 with the objective of reducing the high CGT cost for
successful entrepreneurs. However, the measure introduced has some significant limitations and was
further restricted by changes introduced in Budget 2015. The relief is effectively only available where an
entrepreneur makes two consecutive successful entrepreneurial investments.
Issue
Ireland competes with other countries as a location for start-up investment. Investment capital is very
mobile and other jurisdictions have increasingly competitive offerings. The current Entrepreneur Relief is
very restrictive and complex. The benefits of the regime are often uncertain and crystallise too far into
the future to influence decisions made today.
These restrictions are exacerbated by the availability of a simpler, clearer and more attractive relief in the
UK (see spotlight on the UK relief below).
Spotlight on the UK CGT Entrepreneurs’ Relief
The UK Government’s stated ambition is “for the UK to be the best place in Europe to start, finance and
grow a business” and Entrepreneurs’ Relief is a critical tool in pursuing this strategy.
Entrepreneurs’ Relief was introduced in the UK from 2008 and it was aimed at encouraging individuals to
start a business and invest in it. The relief operates by reducing the amount of CGT payable by an
individual on a disposal of qualifying business assets, as long as certain conditions have been met
throughout a one-year qualifying period either up to the date of disposal or the date the business ceased.
Qualifying capital gains for each individual are subject to a lifetime limit of £10 million (for disposals on or
after 6 April 2011). It is notable that this lifetime limit has been increased three times since the relief was
introduced, increasing from an initial level of £1 million to the £10 million limit which applies now.
Qualifying gains are subject to CGT at a rate of 10%, instead of the normal UK rates of 18% and 28%.
Relief can be claimed on a disposal of qualifying business assets or shares in a “personal company” (i.e. an
individual holds at least 5% of the ordinary share capital and 5% of the voting rights).
Recommendation
A clear 10% CGT rate on entrepreneurial gains is required
A significantly revised and simpler Entrepreneur Relief is required so that entrepreneurial gains are taxed
at no more than 10%. A reform of this nature is essential if Ireland is to compete with countries such as
the UK for investment business.
To ensure the relief meets its target objectives, it could:
? Be limited to certain types of business assets and shares, and
? Require a minimum investment period of 3 to 5 years.
A relief like this would be very similar in nature to the UK relief which should minimise any State Aid
challenges arising. The attractiveness of this regime could be further enhanced by allowing payment of
the tax to be deferred where the proceeds on disposal are reinvested in other qualifying business assets
or shares within a certain timeframe. This would further encourage entrepreneurs to continue to invest
in productive businesses in Ireland.
13
Employment and Investment Incentive (EII)
Background
The EII provides income tax relief for individuals who make equity investments in qualifying trading
companies. Relief is granted in two tranches, 30% in the year of investment and a further 10% relief
after 3 years if certain conditions are met (this additional tranche of relief was previously available at 11%
prior to Budget 2015). There are a number of criteria that must be met by both the investor and the
company, in order for EII relief to apply:
? The company receiving the funds must carry out a qualifying activity.
? The funds must be used by the company for that qualifying activity.
? The investor must not control more than 15% of the company.
? There are limits on how much a company can raise and how much an individual can invest.
The EII was introduced in Finance Act 2011 to replace the Business Expansion Scheme (BES). Budget 2011
outlined that the rationale for replacing BES with EII was to boost job creation by SMEs and it was
anticipated that an extra €13 million of tax relief would be granted under the new scheme each year.
However, the introduction of the EII has actually resulted in a reduction in the level of tax relief being
granted to investors in Irish businesses, with a significant knock-on effect on the level of funds invested.
Year Relief Cost €m Funds Invested
€m (approx)
10
No. of investors
2011 BES 41 100 927
2012 BES 31.5 76.8 984
2012 (part of year) EII 4 13 352
2013 EII 12.3
11
41 1,006
2014 (provisional) EII 15.1 50 1,132
The table above demonstrates that although the number of people investing has increased, the total
level of EII funds invested in SMEs has significantly decreased (by 50% from 2011 levels).
One of the limitations with the EII as originally introduced was that the High Earners’ Restriction
effectively capped the amount of relief available to investors to such an extent that the relief was not
attractive – particularly considering the high risk profile of the investments involved. Finance (No. 2) Act
2013 temporarily removed the EII from the scope of the high earner restriction and a further review was
carried out in 2014. It appears from the provisional figures for 2014 available in the table above that this
change has contributed to some increase in investment levels and it is essential that this position is made
permanent.
Further changes were made in Finance Act 2014 (pending EU State Aid approval) to:
? Increase the amount of EII funds which a company can raise,
? increase the holding period by 1 year to 4 years, and
? include medium-sized companies in non-assisted areas and internationally traded financial
services.
10
Actual levels of funds invested through EII was not available at the time of writing and therefore these
figures are estimated based on the published Cost amounts.
11
The cost of the scheme that had been anticipated by Government was €54m – a clear demonstration that
the terms of the scheme are delivering sub-optimal investment levels.
14
Increase in investment limits in Finance Act 2014
EII Investment
Pre- Finance Act
2014
Post- Finance Act
2014*
Annual investment limit p.a
€2.5m
€4m
Lifetime investment limit €10m €15m
*pending State Aid Approval
The table below compares the attractiveness of our current EII with both the previous BES regime and
the two UK equivalents – the SEIS is a specific form of EII aimed at attracting investment into the smallest
businesses. One of the biggest differences between the Irish and UK regimes is the eligible investor limit.
Our €150,000 limit compared with the UK Stg £1m limit is one of the main restrictions on investment
here. Coupled with this, there is a CGT exemption on the sale of the shares in the UK, which does not
apply in Ireland. An effective 10% entrepreneurs’ relief in Ireland would reduce the impact of this
difference.
BES EII UK EIS UK SEIS
Rate of relief 41% upfront 30% in year 1 +
10% after 3
years
30% 50%
Company
investment limit
€2 million
lifetime limit
€10 million
lifetime limit
£5 million per 12
months. No
lifetime limit
Stg£150,000 lifetime
limit
Investor Limit €150,000 p.a.
(but subject to
High Earner
Restriction)
€150,000 p.a. Stg£1,000,000 Stg£100,000
Holding Period 5 years 4 years 3 years 3 years
Eligible
companies
Limited to
qualifying trade
and certain areas
Most trading
SMEs
Companies with
gross assets
< Stg£15 million &