Tax schemes need to be extended: ISA

31-10-2006

by Ciara O'Brien

The Irish Software Association has called on the Government to extend funding schemes designed to support the indigenous software industry.

The organisation is looking for the extension in the forthcoming 6 December Budget of the Business Expansion Scheme (BES) and the Seed Capital Scheme (SCS), in a bid to encourage investment in the industry. Both schemes are due to end on 31 December 2006 -- the ISA wants them extended until 2013.

The ISA is also seeking an increase to EUR1.5 million in the investment limits that companies can raise -- currently limited to EUR1 million -- and a rise in the limit on personal investment to EUR250,000 per annum, currently set at EUR31,750.

According to the ISA, these changes are necessary if the industry is to achieve its potential annual revenues of EUR7.5 billion by 2010, and increase the number of people it employs from 16,000 people to 50,000.

"Business Expansion Scheme and Seed Capital funding is particularly important for software start-ups and early-stage companies, which are finding it virtually impossible to access the financing they need in order to start, grow and, in some cases, survive," said Michele Quinn, director of the ISA.

"There is a structural gap in the market for companies seeking relatively modest sums of risk capital. This gap is most acute for companies seeking equity of between EUR500,000 and EUR3 million per round. To date, the Business Expansion and Seed Capital Schemes have allowed start-ups to bridge that gap and have played a vital role in supporting job creation in Ireland."

The organisation is also asking the Government to enhance the research and development (R&D) tax credit scheme, to make it more attractive for SMEs.

"If we are to continue to compete globally, we must increase the amount invested in R&D. The tax credit scheme is in its third year of operation, while the ISA supports the scheme in principal, changes are needed to improve the way it operates and make it more accessible for SMEs," said Quinn. "It is currently more suitable to larger, established, tax liability companies who are already carrying out R&D."

The ISA is recommending the introduction of a tax credit offering on the employer's PRSI-type payments for technical personnel.

"Given that wages and salaries typically account for approximately 50 percent of R&D costs, this is an effective method of reducing the impact of such costs," said Quinn.

"On the tax scheme, the ISA is also recommending the extension of the base period, which is used to calculate the size of the tax credit, from three to seven years

The case for expanding the schemes has already been proven, with more than 50 percent of software start-ups relying on BES and SCS funding in the past few years.