Global Mobility & Employment Taxes
Finance Bill 2019
Key Employee Engagement Programme
The introduction of the Key Employee Engagement Programme (“KEEP”) in Finance Act 2017 was heralded as a welcome move to incentivise Small & Medium-Sized Enterprises (“SMEs”) to attract and retain staff in a tax efficient manner. This scheme allows employees to defer the tax on the exercise of share options until the point of sale whereby the gain is taxed at capital gains tax rates instead of income tax rates. We understand the take-up has been very low and the Department of Finance launched a consultation process in 2019 to see how KEEP could be improved. The Minister announced changes to KEEP in Budget 2020. The Finance Bill confirms these changes:
- The scheme will apply to qualifying group company structures allowing options over shares in the employer company or in a qualifying parent company,
- It will permit the use of existing rather than just new shares; and
- The hours required to be worked by an individual have been reduced from 30 hours per week to either 20 hours per week or at least 75% of the individual’s working time.
Implementation of these changes remain subject to Ministerial Order.
It is welcomed that the Minister is taking some action to make the KEEP scheme more attractive to employers. The reduction in the number of hours an individual is required to work for the company should allow the relief to be availed of by part-time workers. It is positive that the options can be over shares in the employer company or in its qualifying parent company. However, it is a requirement that the holding company is not trading and that its business consists wholly or mainly in holding shares in subsidiaries as defined. In addition it is a requirement that the activities of the group as a whole must consist wholly or mainly of qualifying trades. Where any excluded activity is carried on within a group it may be challenging to satisfy this condition. It is disappointing that there is no indication of a move towards providing a safe harbour in relation to share valuations. We recognise that Revenue may not wish to formally approve valuations on an ongoing basis for KEEP. However as an alternative, we recommended in our response to the KEEP consultation that Revenue develop and issue guidance on appropriate valuation methodologies to support SME companies in adopting KEEP. In the absence of such guidance companies may see the cost of valuations, which are required at the outset and on the grant of new tranches of options, as too high to allow them to utilise KEEP.
The Minister did not make any announcements regarding some of the other conditions which have proved to be the main blockers to take up of the scheme; namely the broad definitions of companies excluded from the KEEP scheme, certainty around exit mechanisms and the limitation by reference to a percentage of remuneration.
The Minister has again this year not taken the opportunity to announce any broader changes to the taxation of share schemes, which will be disappointing for domestic and foreign MNCs who do not meet the SME thresholds. However, it would be hoped that there would be a continued focus by the Government on the area of reward in 2020.
The Finance Bill extends the Special Assignee Relief Program (SARP) to 2022.
As announced in budget 2018, the National Training Fund levy will increase from 0.9% to 1% from 1 January 2020. This is in effect an increase in employer’s PRSI from the current rate of 10.95% to 11.05%.
The Bill provides for the extension of the 0% benefit-in-kind rate for electric cars to 2022. The Finance Bill includes provisions to introduce an environmental rationale for benefit-in-kind for cars from 2023. The legislation outlines the percentage of the Original Market Value of the car which will be taxable based on the individual’s mileage and the CO2 emmissions of the car. The benefit in kind on vans will increase from 5% to 8% with effect from 2023.
Interestingly the new provisions in respect of employer provided cars provide for a reduced benefit in kind for more fuel efficient cars. Legislation drafted in 2008, whose implementation remains subject to Ministerial order, proposed retaining the current rate of BIK for cars with up to 120g/km CO2 emissions while increasing the rate for cars with higher emissions. The new provisions should incentivise employees who utilise lower fuel emission cars. Under current rules the BIK rate for an employee with 28,000 km is 24 per cent whereas this could reduce to 18 per cent for cars up to 59g/km CO2 emmissions.
It is disappointing that there is no reference to a reinstatement of the long-standing practice of treating not more than 30 workdays of employees of foreign businesses as being incidental and exempt from payroll withholding. This change would provide much needed certainty to companies and would enhance Ireland’s attractiveness for businesses considering locating here as a result of Brexit and other global economic conditions. As it has not been included in the Finance Bill we hope it will come by way of updated guidance from Revenue before the end of 2019. In the absence of this change there will be a significant administrative burden on employers from 2020 who have business visitors to Ireland.