Ireland has launched a review of the various tax breaks it offers to those starting a new company or providing financing for start-ups, to ensure they remain best in class.
Ireland offers a wide range of tax breaks for entrepreneurs, including the Employment and Investment Incentive (EII), Start-Up Refunds for Entrepreneurs (SURE), the Start-Up Capital Initiative (SCI), and the Capital Gains Tax Entrepreneur Relief.
Ireland recently made several changes to the EII, SURE, and SCI regimes in Finance Act 2018. However, the Government is now considering whether to make further changes to the EII and SURE initiatives, to improve their appeal, based on the findings of a review undertaken last year.
The Employment and Investment Incentive (EII)
The EII is a tax relief that is intended to boost funding for higher risk start-ups. It provides individual investors initial tax relief of 30% of the amount they invest, with a further 10% available three years after the initial investment, providing certain criteria on employment or research and development are met.
The Government is now considering whether to enhance this relief by boosting the tax relief available for investments in sectors with the greatest levels of market failure. It is also considering whether to increase the annual investment limit for longer-term EII investors and higher risk sectors and whether capital losses should be deductible for such investors.
To ensure the integrity of the initiative, it is considering whether to change the eligibility for EII to include a condition that investors should face normal commercial risks as shareholders.
Start-Up Refunds for Entrepreneurs (SURE)
The SURE scheme is a tax incentive targeted at those looking to set up a new company having previously been in Pay As You Earn (PAYE) employment or recently unemployed. It provides tax relief in the form of a refund of PAYE tax paid on up to 41% of the capital invested in the new business.
For both SURE and EII, Ireland is considering whether full tax relief should be provided in the year an investment is made and that the gains in the value of shares should be subject to capital gains tax rather than income tax.
Further, the Government is considering whether to add "innovation" to the definition of research and development to broaden the scope the incentives and is considering how to simplify the process with less restrictive conditions on start-ups looking to raise limited investments.
Capital gains tax relief for entrepreneurs
On 5 June 2019, the Government also announced that it would review capital gains tax perks for entrepreneurs and launched a consultation on proposals for change.
Ireland introduced the capital gains tax revised entrepreneur relief in Budget 2016. That measure provided for a rate of 20% to be applied to chargeable gains arising from the disposal by an individual of business assets. There was a lifetime relief of €1m.
Ireland improved this measure in the subsequent Budget, which reduced the rate on such gains to 10% – significantly below Ireland's headline CGT rate of 33%.
The new review, which will run until 5 July 2019, will consider whether the relief is relevant and how much it costs Ireland in lost revenue. The Irish Government wants to understand whether the relief is working effectively in supporting entrepreneurs and encouraging them to establish operations in Ireland. The review will in particular look to ensure that it is competitive compared with the UK's Entrepreneur Relief scheme. Both reviews could further enhance Ireland's appeal for both domestic and foreign investors.
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