EIIS Changes – How will it affect the Industry?

There is a major overhaul of the EIIS tax relief rules coming in 2024. This blog aims to outline the changes and what we can expect for the industry going forward.

The author of this blog post (Kevin Canning) is an experienced tax advisor and EIIS fund manager. Therefore, he has experience in both technical EIIS tax relief legislation and professionally investing capital using EIIS relief.

Overall, the rule changes are not positive for EIIS investors or Irish SMEs. However, in my opinion the EIIS scheme is still the best tax relief available to high earners in Ireland. The only other tax relief that compares is pension contributions which have an annual restriction, can only be used against certain types of income and lock away your capital until retirement age. EIIS does not have such limitations and is far better in my opinion.

One positive of the new changes is that it will disincentivise companies availing of EIIS tax relief repeatedly over a 7 year period. Previously, this allowed certain companies to consistently issue redeemable shares (akin to 4 year loans) on an annual basis with later investor funds potentially being used to redeem earlier investors. I believe the new rules will alleviate this issue and could clean up the market significantly. A healthy EIIS market with great investor returns should benefit all participants.

It is worth pointing out that the EIIS rule changes were forced due to new EU rules on State Aid rather than the Irish government wanting to inhibit the growth of indigenous companies. In this regard, it is not helpful to compare our rules with the UK EIS/SEIS rules as the UK is no longer governed by the EU. If you want the UK rules, the only way of achieving this is for Ireland to exit the EU.

What has Changed?

Up to 31 December 2023, EIIS will continue at a flat rate of 40%. This means that if you invest €100k in an EIIS qualifying company, the investor gets a refund of €40k from the Irish Revenue Commissioners.

From 1 January 2024, EIIS will now have a tiered tax relief system. The premise for this system is that the riskier the business is as an investment, the higher the tax relief should be. The new rates are:

Investor Tax Relief Conditions to Qualify
50% A business that “has not operated in any market”. This is assumed to be a business that has not yet made a sale and will only be for specific types of innovative companies.
35% A business doing its FIRST EIIS fundraise within 7 years of its first sale and 10 years since incorporation (must pass both tests)
20% A business doing its SECOND or subsequent EIIS fundraise
20% A business looking to raise at least 50% of its annual turnover for the past 5 years to enter new markets or regions (note that 50% test becomes 30% if using green technology)
30% For an indirect investment only if considered a “Qualifying Investment Fund”, note that Elkstone is the only one in the country currently.


As you can see from the above, the EIIS scheme is now much more complicated. Note that this is coming from a place where the Revenue guidance manual is already 108 pages. I would be surprised if Revenue can keep their new manual to under 200 pages.

Size of the EIIS Scheme in Ireland

We estimate that there is c.€60m invested through the EII Scheme annually. In 2016 this was as high as €100m, but with changes to the scheme in 2016, investment participation significantly dropped. We hope that these new changes will not see another major drop off in investor participation at a time when SMEs need it most. EIIS funds account for around 60% of the scheme annually.

Industry Participants

What do the changes to the scheme mean for the different players in the EIIS Industry?

  1. Irish SMEs

Companies raising EIIS finance now only get one chance at either 50% or 35% investor tax relief. Once EIIS relief has been used once by a company, the relief is then restricted to 20% for future investments. In our view, investors will have limited interested in 20% tax and therefore, companies will need to be very selective about offering EIIS in the future.

Traditionally, many companies in Ireland might start with a ‘friends and family’ round of €100k and offer EIIS tax relief. This would no longer be advisable as companies with big ambitions might wait until they have sufficient scale to raise €3m – €5m from an EIIS fund and/or a mix of angel investors.

Companies might also only get one shot with an EIIS fund, therefore, the investment rounds for EIIS might be significantly bigger.

The new rules also inhibit the practice of companies doing a rolling EIIS investment for up to 7 straight years. I have no issues with this when it’s ordinary equity shares, but when it is a 4 year redeemable preference share (akin to a loan) then risk is likely increasing for the latter investors. In this sense, the new rules are helpful for the industry.

  1. EIIS Investors

For investors, EIIS is still a great tax relief albeit not quite as good as it was. To be able to claim a tax refund of 35% against total income (i.e. rental income, share options, employment income) is still an exceptional tax saving. I will continue to invest using the EIIS scheme, albeit I will be unlikely to invest using the 20% rate and will avoid funds that do so. The IRR is too difficult to make up with the lower rate of tax.

One prediction of mine is that EIIS tax relief will become scarce at the very early-stage as companies now only get one chance at either 50% or 35% tax relief. Therefore, the very early-stage investors could suffer as a result. These rounds will likely be done via holding companies through SAFE agreements. This is the exact opposite of what the EU is trying to achieve, i.e. incentivise investors into earlier stage companies.

It is also worth noting that the new CGT Angel Investor Relief will count as a company’s first EIIS fundraise and if used, any subsequent EIIS rounds will only be able to offer 20% tax relief. I believe that it is unlikely to be used much in practice.

I personally believe that EIIS funds will become far more attractive to investors in 2024 as the private EIIS market dries up. Looking through the annual Sunday Business Post EIIS Special for 2023, it is difficult to imagine many of these companies being in the publication next year as they may only be able to offer 20% tax relief.

EIIS Funds becoming more prominent in the market is not a bad thing as there are very few controls within the private EIIS market. This should be a positive for investors provided the funds provide a good service. I would not invest using a redeemable preference share unless a reputable investment manager is looking after my interests.

  1. EIIS Funds

There are 4 traditional EIIS Funds in Ireland (The EIIS Innovation Fund, The BDO/Davys Fund, The Goodbody Fund and BVP) with one venture capital fund (Elkstone) offering partial EIIS. Together, these funds account for anywhere from 60% – 70% of the EIIS investment each year out of a total of €60m – €70m annually.

As EIIS funds, we raise capital from investors each year in Q4 and invest it into Irish SMEs in the following 12 months. Each EIIS fund has a slightly different mandate but in general, we all target scaling Irish businesses and would be unlikely to be funding their first investment round. Traditionally, we could also do numerous ‘follow on’ rounds in these companies if they are scaling successfully.

For example, in 2023 we invested in excess of €4m into Ground Wellbeing, Squid Loyalty, All Real Nutrition Gigable and Spark Digital & AI. Each of these companies will likely need further capital in the future and this cannot come from us. Prior to the changes, we would have considered these as viable options.

Our fund will now only target investments at the 35% tax rate. Therefore, we will no longer look at expansion risk finance or follow on investments which qualify for 20% tax relief. This is to give investors the best chance of our targeted IRR of 15%. It becomes very difficult using a tax rate of less than 35%. It remains to be seen what the other funds will do.

  1. Tax advisors

On the face of it, it may seem like there will be much work for tax advisors with the new rules. However, the new changes could result in an EIIS market where the typical small business is not using EIIS due to its complications and the fact that a company might keep its one chance at EIIS for later in its life cycle. Therefore, tax advisors now might just act for later stage companies who are using EIIS.

Overall Summary

I believe the major losers with the rule changes will be the very early-stage companies that should be relying on EIIS investment for their first couple of fundraises. These businesses would now be well advised to wait until later in their life cycle to raise a larger round. This is totally at odds with what the rules changes have intended (i.e. incentivise investors into earlier stage companies).

It is also very frustrating for any business that may be restricted to 20% investor tax relief due to a small ‘friends and family’ investment round in the past. Due to no fault of their own, they are now significantly disadvantaged for future fundraises.

Investors such as HBAN groups who rely on EIIS to fund early-stage companies may also leave the market if tax relief is no longer available to these investors.

As with all tax changes, there are inevitably going to be some clever opportunities arising from this. In my opinion, this will likely arise with the 50% tax rate. For example, is there a life sciences business that just got FDA approval readying for production that can qualify for EIIS relief having never traded before? The 50% EIIS tax relief could be very beneficial in this instance, but we await more guidance on its use.

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