As part of the preparations for Budget 2020 and Finance Bill 2019, the Tax Division of the Department of Finance is undertaking a stakeholder consultation process on tax incentives for the Small and Medium Enterprise sector.
The Department is inviting interested parties to make submissions in relation to the Employment and Investment Incentive (EII); Start-up Refunds for Entrepreneur (SURE); the Start-up Capital Initiative (SCI); the Key Employee Engagement Programme (KEEP); and CGT Entrepreneurs' Relief. Consultation documents in relation to Corporation Tax incentives are already available on the Department’s website.
Written submissions in response to the appended consultation documents* should be provided to the Department in the manner set out in the documents by close of business on Friday, 24 May 2019.
The Department also intends hosting a one-day consultation event for stakeholders in a Dublin city-centre location on 6 June next.
The Employment and Investment Incentive (EII) is a tax incentive initiated in 2011 providing tax relief of up to 40% in respect of investments made in certain corporate trades. Initial tax relief of 30% of the amount invested is provided with a further potential 10% available three years after the initial investment should certain criteria on employment or R&D be met. The main objective of EII is to provide SMEs and start-ups with an alternative source of funding and to support the creation and retention of employment in SMEs across the economy.
The Start-Up Refunds for Entrepreneurs (SURE) scheme replaced the Seed Capital Scheme and is a tax incentive scheme targeted at those looking to set up a new company who were previously in PAYE employment or were recently unemployed. The SURE scheme provides tax relief in the form of a refund of PAYE tax paid by claimants of up to 41% of the capital invested in the new business. The SURE scheme aims to act as a source of finance to assist people to start their own businesses.
The Start-up Capital Incentive (SCI). Under the SCI, companies can raise up to €500,000 from investors who are connected with current shareholders. To qualify for the SCI the company must:
• be a micro-enterprise (being one with 10 or fewer employees and one whose annual turnover and/or annual balance sheet total does not exceed €2 million);
• carry on a brand new business, and not one that was acquired, in whole or in part, from anyone else;
• be a stand-alone business (the founders must not have other similar businesses); and
• be less than 7 years old.
The Key Employee Engagement Programme (KEEP)
Under the KEEP incentive, qualifying individuals may be granted the option to acquire a specified number of shares in their employer company at a specified price, the option price, which must not be less than the market value at the time of grant.
At a future date, within 10 years following grant of the option, the employee may choose to exercise the option and purchase the shares.
Provided certain conditions are met an exemption from income tax, the Universal Social Charge (USC) and Pay Related Social Insurance (PRSI) will apply to the discount from the market value at the date of exercise (assuming that the shares have increased in value since the option was granted.) The discount received will however be subject to Capital Gains Tax on the subsequent disposal of the shares.
This incentive is available for qualifying share options granted between 1 January 2018 and 31 December 2023.
Under the original design of the incentive, the total market value of all qualifying share options which could be granted by the qualifying company to a qualifying employee could not exceed the lessor of:
1) €100,000 in any one tax year;
2) €250,000 in any three consecutive years; or,
3) 50% of the annual emoluments of the employee or director in the year in which the qualifying share option is granted.
A limit of €3 million applies on the market value of issued but unexercised KEEP share options that a company may have on issue at any given time.
Amendments to KEEP in Finance Act 2018
During the course of 2018, it became apparent that take-up for the scheme was likely to be lower than anticipated. Taking account of the stakeholder representation he received on the scheme, the Minister for Finance announced his intention to make changes to the design of the scheme in his Budget 2019 speech.
Finance Act 2019 provided for the following amendments to KEEP:
• the limit of €250,000 in any 3 consecutive years of assessment was replaced by a life-time limit of €300,000; and,
• The limit of 50% of the annual emoluments in the year of assessment was increased to 100% of annual emoluments.
As KEEP is a notified State Aid, these changes were subject to a commencement order pending approval of the European Commission. This process is under way.
CGT Entrepreneur Relief
The Revised CGT Entrepreneur Relief provides for a rate of 10% to be applied to chargeable gains arising on the disposal by an individual of business assets up to a lifetime limit of €1m.
A qualifying business is a business other than the holding of securities or other assets as investments, the holding of development land or the development or letting of land. The relief applies to individuals only.
The relief does not apply to the following assets: