Share options granted under KEEP scheme not subject to income tax or PRSI but administration of scheme may cause uncertainty
Finance Bill 2017
19 October 2017: Finance Bill 2017 has introduced the relevant conditions for the Key Employee Engagement Programme which was announced in Budget 2018. Commenting on these Daryl Hanberry, Tax Partner, Deloitte said:
“The conditions are broadly as expected and do mirror many of the provisions of the Enterprise Management Incentive Scheme in the UK. The scheme applies to small or medium sized enterprises with less than 250 employees and annual turnover of not more than €50m or a balance sheet total of €43m.
“Encouragingly, any qualifying share options granted under the scheme will not be subject to income tax or PRSI on exercise and will instead be subject to Capital Gains Tax at the point of sale. This will remove some of the blockers that currently exist, such as an illiquid market for sale while also providing a tax effective way of remunerating employees.
“While the detail will be positively received by private Irish companies and their employees, there are a number of technical requirements that will need regular monitoring to ensure the options qualify for tax beneficial treatment. Of particular concern will be the valuation requirements and whether there will be any approval process from Revenue to provide certainty to employers.
“In addition, many of the conditions are required to be met for the entirety of the period from the granting of shares to the exercise of them. This will add to the administration of the scheme. For example, if a company meets the SME conditions on grant, any increase in company value may mean that the options do not meet the conditions at the time of exercise and this will create uncertainty for employees. There is an opportunity to provide clarity on how this will work in advance of the bill becoming an act.”
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