Tax Relief for Irish Startups

Alan Clerkin

Alan Clerkin

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Under a new Government scheme called StartUp Refunds for Entrepreneurs (SURE), entrepreneurs can make a claim for a refund against income tax they paid over the past six years.

You may be entitled to an income tax refund of up to 41% of the capital that you invest in your own company under SURE. Depending on the size of your investment you may be entitled to a refund of income tax paid over the 6 years prior to the year in which you invest.

SURE is a tax relief that provides a refund of income tax that you paid in previous years. You can claim the relief if you are an employee, an unemployed person or a person who has recently been made redundant and are starting your own business.

The business must be incorporated as a limited liability company and trade from an Irish base. The company must be less than two years old from the date of incorporation to qualify. The minimum SURE investment is €250 and the maximum investment is €700,000, which is €100,000 each for each of the last six years as well as €100,000 for the current year.

The general conditions for SURE are that you must:

  • Establish a new company and engage in a qualifying trading activity(s); and,
  • Invest money in the new company by way of purchasing new shares; and,
  • Have had mainly PAYE income in the previous four years (This would include a person currently in PAYE type employment, an unemployed person, a person recently made redundant or a retired person); and,
  • Take up full-time employment in the new company either as a director or an employee.

The investment must be for new eligible shares without any preferential rights. If an investor has paid company expenses from his own resources this may qualify.

If an investor has met company expenses from his/her own resources and this is considered a directors loan, the investor may, within 12 months, convert this loan to share capital.

In order to obtain SURE on the converted loan, an investor must supply a registered auditor’s statement containing the following:

  • The date the loan was made.
  • The date the loan was converted.
  • Confirmation the funds were used for the benefit of a qualifying new venture in the carrying out of relevant trading activities, or in the case of a company that has not commenced to carry on relevant trading activities on R&D activities and the creation and maintenance of employment.

Salary forgone is not considered to be the making of a loan for SURE purposes.

There can be two “relevant investments” under the scheme, the second of which must take place within two years from the end of the first year i.e. if the first relevant investment is in 2018, then the second investment must take place in either 2019 or 2020.

A relevant investment is the total invested in a calendar year e.g. an investor can make investments in March, June and December.

If all of the conditions are met an investor may be entitled to a SURE refund on the investment as follows:

  • From the previous 6 tax years select the year the SURE investment is to be utilised.
  • The SURE investment is used to either:
  • to fully utilise the SURE investment, up to a maximum of €100,000, or
  • reduce the taxable income in the year selected to Nil.

If the SURE Investment has not been fully utilised in the year selected other years can be used in order to fully utilise the investment.

It should be noted that:

  • A SURE investment, up to a maximum of €100,000, must be fully utilised in the 1st year selected before another year is chosen and so on until the SURE investment has been fully utilised.
  • A SURE investment cannot be split between years in order to reduce income in a certain year to the standard rate cut off point and select another year in order to maximise the refund at the top rate of tax.
  • Only the investor is entitled to income tax relief on the SURE investment made.

The Local Enterprise board, has outlined full details of the Startup refund here