Good news for Enterprise Investment Scheme (EIS)
The UK’s three tax-based Venture Capital Schemes, the Enterprise Investment Scheme, Venture Capital Trusts and the Corporate Venturing Scheme, have each received formal state aid approval from the EC subject to four final changes. Of these, the most significant is a relaxation of the rules relating to the location of small companies’ qualifying activity. The relaxation allows companies to receive investment under the schemes while enjoying greater opportunities to expand internationally.
The Government has stated that legislation implementing these changes will be introduced in Finance Bill 2010, to provide time for consultation with industry over the detail.
The four changes required to secure approval are:
- relaxation in territorial rules – the current rule requires at least 50% of a company’s qualifying activities to be in the UK. This will be relaxed so that a company is only required to have a “permanent establishment” in the UK.
- exclusion of “enterprises in difficulty” – to bring the schemes in line with the Risk Capital Guidelines, “enterprises in difficulty” will not be eligible for investment under the schemes. Government will consult on the details.
- in addition, for Venture Capital Trusts (VCTs) only, two further changes will apply:
- change in minimum equity requirement – the current requirement is for at least 21% of total funds to be in ‘ordinary shares’ as defined. For future fundraising VCTs will be required to hold at least 49% of total funds in ‘equity’. Legislation will introduce a new definition of ‘equity’, allowing a wider range of eligible investments than at present. Government will consult on the details.
- relaxation of listing requirement of VCTs – the Government will relax the current rule, which requires VCTs to be listed in the UK. Instead, listing will be allowed on any “European Union Regulated Market”.
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Cathy Corns is a Corporate Tax partner at Mercer & Hole.
Date: 19th May, 2009
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