Share Schemes: A Review of Recent Developments

PUBLISHED: 5th April 2024

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There are a wide range of share-based remuneration schemes available for employees in Ireland. 

Revenue approved arrangements qualify for tax advantageous treatment whereas unapproved arrangements tend to provide greater flexibility.  Some examples of these schemes are listed below.

Unapproved schemes

  • Unapproved share option schemes
  • Restricted shares
  • Free and discounted shares
  • Restricted stock units
  • Phantom shares and stock appreciation rights
  • Growth shares
  • Key Employee Engagement Programme (KEEP)
  • Forfeitable shares

Revenue approved schemes

  • Approved Profit-Sharing Schemes
  • Save As You Earn

Department of Finance Public Consultation

With many businesses in Ireland offering their key employees share incentive arrangements, the Department of Finance held a public consultation on share-based remuneration schemes in Ireland, which ended in January 2024.  

The aim of the public consultation was to gain an in-depth understanding of stakeholder and industry views on Irish share schemes and to ascertain whether the administration of these schemes, and the legislation governing these schemes, is fit for purpose in the current business and wider economic environment.      

Employers, employees, industry representatives and other interested parties submitted recommendations and provided feedback on the practical operation of the Irish tax regime applicable to share schemes.

The outcome of the consultation process has not yet been published but it is a positive development and recognises the increased importance of share incentive arrangements as critical tools for incentivising and retaining key staff amid the ongoing globalisation of the workforce.

KEEP Scheme Improvements  

The Key Employee Engagement Programme (KEEP) share scheme is a tax advantageous share option incentive arrangement introduced in 2018 for start-ups and SMEs.  Subject to satisfying relevant conditions, no income tax arises on the exercise of a KEEP share option and instead capital gains will arise on disposal of the KEEP shares.  To date, there has been a very low uptake of KEEP options, partly due to the perception that the conditions which must be satisfied by the employer and the participating employees under the KEEP scheme are overly restrictive.   

A report by the Commission on Taxation and Welfare, Foundations for the Future, also examined share-based remuneration in Ireland in 2022 and recommended some key changes to the KEEP scheme.  

A number of improvements have been introduced to KEEP in recent years including:   

  • the extension of KEEP relief until 31 December 2025
  • the extension of existing ordinary fully paid-up shares as qualifying KEEP shares 
  • the increase of the KEEP limit for the total market value of issued but unexercised qualifying share options for qualifying companies from €3 million to €6 million

These measures are welcome developments.

Changes to the Taxation of Employee Share Options

A significant new measure was recently introduced whereby employers are now responsible for ensuring payment of tax due on the exercise of share options granted to employees.  This shifts the burden of collecting income tax, the Universal Social Charge and employee PRSI onto the employer through the company payroll.  Prior to the introduction of these measures the employee granted the share option was responsible for the payment of tax and for the filing of a self-assessment tax return, which was considered by some to be an unnecessary burden on employees.    

Future Reforms?

We await the outcome of the recent public consultation process and are hopeful that further measures will be introduced to simplify the share-based remuneration regime for employers and employees so that share incentive arrangements will become an even more attractive option for businesses in Ireland in the highly competitive environment of attracting and retaining key talent.    

*This article first appeared in the March 2024 edition of Legal Island.

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