Ireland Fact-File Part 5:
Small Business Incentive Programs

5.4 Ireland Individual Business Tax Holidays

Tax holidays for individuals in business

Tax-based incentives available that may be of interest to small businesses include:

The Business Expansion Scheme (BES), which is a tax relief incentive scheme providing tax relief for investment in the following sectors: certain types of manufacturing; the service industry; tourism; research and development (R&D); plant cultivation activities; the construction and leasing of advance factories; and in certain areas of the music industry.

Under the BES, an individual investor can obtain income tax relief on investments up to a maximum of EUR150,000 per annum in each tax year up to 2013, at the investor's highest rate of income tax.

Certain other conditions apply. These include that the investee companies must not be listed on the official list of a stock exchange or on an unlisted securities market of a stock exchange. Companies listed on the Irish Enterprise Exchange (IEX) or whose shares are traded in an over-the-counter market do, however, qualify.

Investors must purchase new ordinary share capital in the company, which must carry no preferential rights. Normally, the minimum investment by an individual in any one company which qualifies is EUR250. The maximum investment by all investors in any one company or group of companies is EUR2,000,000 subject to a maximum of EUR1,500,000 in any one twelve month period.

A qualifying investor must be:

Resident in the State for the tax year in respect of which he/she makes the claim;
Subscribing on his/her own behalf for eligible shares in a qualifying company; and
Not for the relevant period, as defined, connected with the company (see below).

Renewable Energy Generation Investment Relief , which allows businesses to claim deductions on investment in qualifying renewable energy projects.

A renewable energy project means a renewable energy project as certified by the Minister for Communications, Marine & Natural Resources in one or more of the following categories: solar power; windpower; hydropower, and biomass.

The amount that can be invested in any one project cannot exceed 50% of the relevant cost of the project, or EUR9,525,000, whichever is the lesser (although the overall yearly limit is EUR12.7m).

The Seed Capital Scheme (SCS ), which runs in conjunction the Business Expansion Scheme (BES); the BES provides tax relief for investment in certain corporate trades, while the SCS provides for a refund of tax already paid by an individual, when that individual sets up, and takes employment in, a new qualifying business.

The scheme is designed for those who are or were in PAYE type employment in Ireland, and as such, may not be suitable for non-resident business people seeking to establish an operation in the Republic. In order to ensure that this intention is achieved, the sources of income over the four tax years immediately before the year in which the initial investment in the newly established company are reviewed.

In the tax year immediately before the year in which the investment is made, the income may come from any source (that is, it may be from self-employment, rental, investment, PAYE or other).

In the other three tax years, the non-PAYE income should not exceed the lower of EUR25,000 or the total PAYE type income.

Other conditions imposed in order to benefit from the seed capital scheme are as follows:

The investor must enter into a full-time employment contract for at least one year with the company as an employee or a director starting either within the tax year in which the investment is made or if later, within 6 months of the date on which the relevant investment is made;
The investment in the company may be made in two stages, but the second investment must be made within two years following the tax year in which the first investment is made;
Where a second investment is planned, the scheme will only be available up to 31 December 2013, so the investor should be aware of that restriction;
The investor must subscribe for shares in the company;
The investor must acquire at least 15% of the issued share capital of the company, and must maintain the level of his or her shareholding at this percentage for at least one year, even if the share capital of the company expands.

Qualifying trading operations in relation to SCS investment are:

The manufacture of goods;
The operation of certain tourist traffic undertakings;
Internationally traded services;
Certain activities which have the potential to become internationally traded services;
Various types of horticultural activity;
Research and development activity which is undertaken with a view to carrying on certain of these qualifying trading operations and which are certified as such by an industrial development agency;
Commercial research and development activities;
The production, publication, marketing and promotion of a qualifying musical/video recording by a new artist; and
Recycling activities in relation to waste material which has been subjected to any process or treatment which results in value-added material that is reusable. Waste material means any of the following: packaging, construction and demolition waste, metals, wood, glass and plastics, electrical and electronic equipment, batteries, end of life mechanically propelled vehicles.

The qualifying activities are certified by different bodies, depending on the sector, as follows:

Manufacturing generally: Enterprise Ireland, SFADCo, Udaras na Gaeltachta or County Enterprise Boards, as appropriate.
Fish farming (Aquaculture) and fish processing: An Bord Iascaigh Mara.
Internationally traded services and services with the potential to be internationally traded services: Enterprise Ireland, SFADCo, Udaras na Gaeltachta or County Enterprise Boards, as appropriate.
Tourist traffic undertakings: Failte Ireland.
Micro-propagation of plants, plant cloning, mushroom and horticultural cultivation: The Minister for Agriculture and Food.
Commercial research and development: Enterprise Ireland, SFADCo, Udaras na Gaeltachta, or County Enterprise Boards, as appropriate.
Musical/Video recordings by a new artist produced in the State: The Minister for Arts, Sport and Tourism.
Recycling activities in relation to waste material which has been subjected to any process or treatment which results in value-added material that is reusable: Enterprise Ireland, SFADCo, Udaras na Gaeltachta or County Enterprise Boards, as appropriate.

The definition of an SME given by the Revenue Commission in relation to the Seed Capital Scheme (a requirement to benefit from the scheme is that the company must be a micro, small or medium-sized enterprise as defined by the European Commission) is as follows:

A medium-sized enterprise has less than 250 employees and has an annual turnover not exceeding EUR50mn or an annual balance sheet total not exceeding EUR43mn;
A small enterprise has less than 50 employees and has an annual turnover and/or annual balance sheet total not exceeding EUR10mn;

A micro enterprise has less than 10 employees and has an annual turnover and/or annual balance sheet total not exceeding EUR2mn.

Updated in December 2010 In the austerity budget, delivered in December 2010, it was announced that a scheme granting corporate income tax and capital gains tax exemptions (up to EUR40,000) for qualifying small start-ups during their first three years of trading from 2009 and 2010 would be extended to 2011, but would be limited to the equivalent of EUR5,000 employer PRSI liability.