In the Finance Act 2017 the government introduced the Key Employee Engagement Progamme (‘KEEP’) scheme. The scheme offers employers a chance to reward key employees with share options that are an extremely tax efficient method of remuneration. The rules of the scheme apply to any gains arising from the purchase of qualifying share options from 1 January 2018 and before 1 January 2024.
For the employee, the gains made from the Key Employee Engagement Programme shares are fully exempt from Income tax, USC and PRSI. Tax will only be applied if/when the shares are disposed of by the employees, in the form of CGT. Then, key employees may still benefit from a potential tax saving of up to 19% (the current CGT rate of 33% compared to the current marginal income tax rate of 52%). The additional benefit will be seen in the deferral of the tax payment until the shares are disposed of.
In order to qualify for the tax relief from the Key Employee Engagement Programme the shares, employee and company must meet certain conditions:
- The shares upon which the options are granted must be new ordinary fully paid up shares, which carry no present or future preferential rights regarding dividends, assets on winding up or redemption;
- The Option Price at the date of grant cannot be less than the market value of the shares at that date;
- A written contract between the employer and employee is required, and options must be exercised within a ten-year period; and
- The total market value of all shares on which qualifying share options have been granted cannot exceed:
- €100,000 in any year of assessment;
- €250,000 in any 3 year continuous years of assessment; or
- 50% of the annual emoluments of the employee in the year of assessment that the qualifying share options are granted.
- The employer company must be Irish/EEA incorporated and an Irish tax resident, or carrying on a qualifying trade in Ireland through a branch or agency;
- The employer company must exist to wholly or mainly carry on a qualifying trade and not an excluded trade such as; financial services, professional services, dealing in developing land;
- The total market value of the issued but unexercised qualifying share options cannot exceed €3 million.
- The employee must be a full- time employee/director throughout the entire relevant period;
- The employment of the key employee must be capable of continuing for at least 12 months from the date the options are granted;
- The employee/director cannot hold a material interest in the company i.e. for this relief a holding of 15% is deemed material.
How can we help?
At RSM Ireland we advise employers on the drafting of Share Option Agreements and on the conditions that need to be achieved for their key employees to benefit from the Key Employee Engagement Programme. We also assist employers with their compliance obligations following the introduction the KEEP scheme.
If you would like to discuss the implementation of the Key Employee Engagement Programme in your business, please contact [email protected]