Ireland has transformed into an economic powerhouse over the past two decades, largely due to Foreign Direct Investment (FDI). With tech giants like Apple, Google, Pfizer, and Meta establishing bases here, multinational employees have seen a surge in wealth - often through share option schemes. However, these options come with hefty tax implications. The good news? The Employment Investment Incentive Scheme (EIIS) can help ease that burden, offering up to 50% tax relief on qualifying investments.
Let’s dive into how EIIS works, its benefits, and how multinational employees can use it to save on taxes while potentially boosting their returns.
What is the Employment Investment Incentive Scheme (EIIS)?
The Employment Investment Incentive Scheme (EIIS) is a government-backed initiative designed to encourage private investment in small and medium-sized enterprises (SMEs). By investing in qualifying projects, taxpayers can receive significant tax relief, which was recently increased to 50% for specific investments in 2024. Essentially, EIIS gives investors the chance to lower their income tax bill while supporting the growth of Irish businesses, particularly in areas like social infrastructure.
For multinational employees looking to reduce the tax hit on their share options, EIIS presents an appealing alternative to paying the standard tax rate of up to 52% on income from shares.
Share Options and Tax in Ireland: The Basics
Before exploring how EIIS can help, it’s essential to understand the tax structure around share options for multinational employees.
Many multinationals offer employees share options, allowing them to buy shares at a reduced price or even receive shares for free. This often comes with a "vesting period" - a set time, usually three or more years, that employees must wait before they can exercise (sell) their shares.
When these shares are eventually cashed in, the gains are taxed as if they were regular employment income, which can reach a staggering 52% tax rate. Let’s look at a simplified example to make sense of it:
Example of Share Options Taxation:
Base Salary: An Apple executive earns a base salary of €250,000, with an annual share option allocation worth €100,000.
Tax on Base Salary: On €250,000, they pay €118,915 in tax, leaving a net income of €131,815.
Share Option Gains: After three years, assume the €100,000 in share options has grown to €200,000. Upon exercising these options, they pay €104,000 in taxes (52% on the gain), leaving a net gain of €96,000.
It’s clear that the tax hit on these gains is significant, which is why exploring tax relief options like EIIS can be so beneficial.
How EIIS Tax Relief Works for Share Option Gains
Let’s say our Apple executive decides not to take the €96,000 net from their share options right away and instead invests it into a qualifying EIIS project. Here’s how it could look:
EIIS Investment Example:
Initial Investment: €96,000 into an EIIS-qualifying social infrastructure project.
Year 1 – 50% Tax Relief: They receive €48,000 in tax relief, effectively lowering their tax burden immediately.
Year 4 – Capital Return + 20% Coupon: Assuming a 20% return on investment, they receive €115,200 back (initial €96,000 plus 20% growth).
Total Earnings After EIIS Investment: €48,000 (tax relief) + €115,200 (investment return) = €163,200.
By utilising EIIS, the executive has not only saved on taxes but also grown their investment.
Note: It’s important to understand that EIIS tax relief offsets income tax, not capital gains tax.
Why Consider EIIS as a Tax Relief Strategy?
For multinational employees, EIIS offers a dual advantage - tax savings and potential investment growth. Instead of paying 52% on share option gains, investing in EIIS provides the opportunity to lower your immediate tax burden while supporting valuable projects within Ireland. Here’s a quick summary of the benefits:
Significant Tax Relief: With 50% tax relief available on qualifying investments, EIIS can drastically reduce the income tax owed.
Support for Irish SMEs: By investing through EIIS, you're supporting small to medium businesses, which strengthens the Irish economy.
Expected IRR: Targeted Rate of Return (IRR) of 18%+ per annum including tax relief.
It is important to note that you are not allowed to reduce your tax liability on share options by making pension contributions. However, such restriction does not exist for EIIS investments.
Understanding EIIS Opportunities with Quintas Capital
At Quintas Capital, we specialise in identifying and facilitating EIIS-qualifying investments that align with investors’ financial goals. For 2024, we’ve launched The EIIS Innovation Fund, focusing on projects within social infrastructure that not only offer tax benefits but also aim for positive social impact. Our fund is designed for high-return potential, making it an ideal choice for multinational employees looking to leverage the 50% tax relief.
Ready to Explore 50% EIIS Tax Relief Opportunities?
If you’re a multinational employee grappling with high tax rates on share options, EIIS could be your solution. By investing in qualifying projects, you can significantly reduce your tax bill and potentially see rewarding returns. For more information on how to get started, download our 2024 The EIIS Innovation Fund brochure or reach out to us at info@quintascapital.ie.
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