Employment and Investment Incentive Scheme & R&D Tax Credits in Ireland

Transcription

1 Employment and Investment Incentive Scheme & R&D Tax Credits in Ireland Thomas O Regan F.C.A, Q.F.A Web:

2 The Employment and Incentive Scheme (EIIS) (Part 1) Relief for Investment in Corporate Trades The (EIIS) is a personal income tax relief incentive scheme that provides tax relief for investment in certain corporate trades The scheme has replaced the Business Expansion Scheme (BES)

3 Employment and Investment Incentive Scheme (EIIS) The scheme allows an individual investor to obtain income tax relief Relief is initially available to an individual at up to 30% Up to a further 10% of the Income Tax Investment depending on employment levels and of R&D spend at year 4 Maximum investment per investor per tax year is 150,000 Excess investment can be rolled forward until claimed. Cut off is 2020.

4 Employment and Investment Incentive Scheme (EIIS) The scheme is available to the majority of small and medium sized trading companies Company Trade Exceptions: Financing activities Professional service companies Dealing in or developing land Forestry

5 Employment and Investment Incentive Scheme (EIIS) The maximum investment by all investors in any one company or group of companies is 15,000,000 subject to a maximum of 5,000,000 in any one twelve month period EIIS is not subject to the high earners restriction

6 Relief for investment in corporate trades Relief can be claimed immediately in the case of established companies or after four months trading in the case of new companies. If the company is not trading at the time the shares are issued, relief cannot be claimed until the company: Commences trading or Expends at least 30% of the funds raised under the scheme on R & D

7 Qualifying Investments Each investment breaks down into a number of component parts. These are as follows: The investor The company and its trade The shares purchased How the company uses the money invested

8 The Investor A qualifying investor is an individual who: Is a resident in the State for the tax year Subscribes on his/her own behalf for eligible shares Is not for the relevant period as defined as a connected party with the company

9 The Investor The above connected party condition does not apply to an investor investing in his/her own company where amounts subscribed for the issued share capital and the loan capital do not, in aggregate, exceed 500,000.

10 Employees and Directors as Investors Employees and directors of the investee company may invest in the company under the scheme

11 Number of Investors in an Individual Company The number of EIIS investors in any one company is subject only to the limitation on the number of shareholders in a private company.

12 Number of Companies an Investor can invest in There is no limit to the number of companies an investor can invest in but tax relief is subject to the overall investment of 150,000 per annum up to and including 2020.

13 The Company is a Micro, Small or Medium Sized Enterprise is incorporated in the State or another European Economic Area (EEA) State Is resident in the State or is resident in another EEA State Is not regarded as a firm in difficulty Carries on relevant trading activities Is an unquoted company Has its issued share capital fully paid up

14 Qualifying Shares New ordinary share capital in a qualifying company Carry no preferential rights as to dividends or redemption There must be no condition which would eliminate the risk to the investor

15 Use of Money Invested The company must use equity raised for the purpose of carrying on relevant trading activities, or if the company has not yet commenced to trade incurring expenditure on research and development

16 Duration of Conditions Shares must be held for at least four years if the investor wishes to obtain the full tax relief

17 Capital Gains Tax The normal provisions relating to capital gains tax will apply in regard to investments under the scheme

18 Benefits to the Company receiving the Investment EIIS funding provides particularly attractive cash flow benefits. Fixed cost of finance for a four year term The investment is made by way of equity and not debt The existing shareholders retain control of the Company No capital repayment until the four year term has expired

19 EIIS at Paul O Donovan & Associates 1. Construction of EIIS presentations 2. Advice to EIIS projects/products 3. Access to EIIS products EIIS currently available Energy sector Micro brewing Medical Services Drug Development

20 R&D Tax Credits in Ireland (Part 2) Background In 2014, total R&D expenditure in Ireland was 2.9 billion according to Eurostat. That equates to 1.55% of GDP EU average is 2.03% of GDP In 2013, R&D tax credits cost the Exchequer 421 million

21 So what are the R&D Tax Credits? The R&D tax credit is a valuable tax-based incentive available to companies The credit operates by giving you up to 25 percent of your R&D expenditure in addition to your 12.5% corporation tax deduction The relief is generally available for R&D activities carried out in a wide variety of science and technology areas The traditional white lab coat R&D perception must be broadened when evaluating Revenues R&D guidelines

22 General Scheme Basic Requirements for qualification The applicant must be a company The company must be within the charge to Irish tax The company must undertake qualifying R&D activities within the European Economic Area (EEA) In the case of an Irish tax resident company, the expenditure must not qualify for a tax deduction under the law of another territory

23 Two tests must be performed to be successful A. The science test: technological uncertainty existed B. The accounting test: R&D spend substantiated by evidence

24 Qualifying activities must satisfy all of the following conditions Be systematic, investigative or experimental activities Be in a field of science or technology Involve one or more of the following categories of R&D Basic research Applied research or Experimental development

25 Deduction Available The tax credit is calculated separately from the normal deduction of the R&D expenditure Company not required to hold IP patents rights resulting from the R&D work Equally, there is no requirement for the R&D work to be successful The definition of qualifying R&D activity requires that a claimant engage in systematic activity to achieve a scientific or technological advancement All claims for R&D tax credit (under s.766) must be within 12 months from the end of the accounting period in which expenditure was incurred

26 Company Benefits 1. Corporation tax liability reduction 2. If no corporation tax liability present, a cash payment will be made by 3 instalments over 33 months subject to company s overall tax liability situation

27 Revenue Audit of R&D tax credit claim In a desktop audit, they may require a submission to be made In an audit visit; they may appoint a field expert to examine the R&D tax credit claim and provide them with an opinion

28 Five Key Points to remember if you re claiming R&D tax credits 1) Remember the deadline: Don t miss out - 12 months after accounting period 2) Documentation, documentation, documentation record every aspect of the R&D project 3) Understand the science R&D tax claim stands or falls on the science test 4) Promote collaboration: It s a team effort science people are often unaware of the Revenue R&D tax credit requirements. Tax & finance people don t understand the science 5) Beware of the evolving R&D law landscape Interpretation changes by Revenue & budget updates

29 Thank You Thomas O Regan F.C.A, Q.F.A