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KEEP -Key Employee Engagement Programme (“KEEP”)

December 20, 2017 Share options 0 Comment

KEEP -Key Employee Engagement Programme

KEEP was recently introduced in Budget 2018.

Please note that this is subject to EU State Aid approval, will be available for qualifying share options granted between 1st January 2018 and 31st December 2023,

The advantage with this is that any qualifying share options under the scheme will be exempt from a charge to Income Tax and rather subject to a charge to Capital Gains Tax (“CGT”) at the rate of 33%. The income tax charge would normally arise when the employee exercises (takes up) the option. The CGT will only arise when the employee actually disposes of the shares and they have the physical proceeds in their account.

This is a significant deferral and reduction in overall effective tax rate. The gain will be on the sales price less the cost of shares to the employee.

Key Points

Qualifying company

1. The grantor of the share option must be a ‘qualifying company’ for the purpose of the relief. So the company

(a) must have been incorporated and resident in Ireland. The relief can extend to a company resident in an EEA Member State which carries on business in Ireland through a branch or agency.

(b) must carry out a ‘qualifying trade’. A qualifying trade is any trading activities carried on commercial bases, which are subject to tax at the standard rate of corporation tax. Certain activities are excluded. These include professional services companies, companies dealing or developing land, financial activities and the building and construction industry.

(c) must be unquoted and a company with fewer than 250 employees, turnover less than €50 million or balance sheet total less than €43 million throughout the period of the option.

(d) must also not be regarded as being in difficulty for the purposes of state aid relief.

(e) can only have a maximum of €3 million value of share options in issue and unexercised at any one time.

A holding company can qualify in limited circumstances i.e. where its business consists wholly of mainly the holding of shares in a qualifying company.  

Qualifying individual

The qualifying individual must be:

1. a full time employee/director of the company, required to devote at least 30 hours per week in the service of the company

2. capable of hold the office of employment for at least a further 12 months from the date the option is granted

3. not able to acquire and having no connection to a person who controls more than 15% of the ordinary share capital of the company.

There is a cap on the value of the options which can be granted in any year of assessment, being €100k in any one year, €250k in any three consecutive years, or 50% of the employee’s/director’s annual emoluments for the year in which the option is granted.

Qualifying share option

1. The option will constitute a right granted to the employee/director for a predetermined quantity and price.

2. Must be a written agreement in place setting out the details of the share option scheme.

3. Option price must not be less than the market value of the share at the date it is granted.

4. A qualifying option generally may not be exercised

(a) earlier than 12 months after it is granted;

(b) later than 10 years after it is granted; or

(c) later than 90 days after the option holder ceases to be an employee or director.

5. The share option scheme must be established for bona fide commercial reasons with a purpose of recruiting or retaining employees.

Reporting requirements

Companies must report the full details of all options granted by 31st March of the year following the year of assessment.

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Joe Cunnane Practice Owner TRA Professional Services       Qualifications:  FCA Chartered Accountant & AITI Chartered Tax Advisor Joe has over 20 years experience working in both private practice and industry ... Read More »