Employee share option schemes

Introduction

Employees can avail of certain share options from their company that may be 'tax free' or 'tax efficient'. However, it is useful to bear in mind that there are few benefits employees can receive that are completely 'tax free'.

There are 3 main ways in which an employee can benefit from shares in the company:

  • Approved Profit Sharing Schemes
  • Share Options
  • Key Employee Engagement Programme (KEEP)
Generally, gains arising from various types of share schemes are chargeable to the Universal Social Charge (USC) and Pay Related Social Insurance (PRSI). However, gains arising from the KEEP programme on the exercise of qualifying share options will not be subject to income tax, PRSI or USC at the date of exercise. The gain will instead be subject to Capital Gains Tax on a future disposal of the shares.

Rules

Approved Profit Sharing Schemes

Approved Profit Sharing Schemes allow an employer to give an employee shares in the company up to a maximum value of €12,700 per year tax-free. Approved Profit Sharing Schemes are subject to certain conditions set out in legislation and administered by the Revenue Commissioners.

Providing the scheme meets the required conditions, an employee will pay no tax on shares up to a maximum value of €12,700 per year. The employer must hold the shares for a period of time (called the "retention period") and the employee must not dispose of the shares before three years. If an employee disposes of shares before this time, he or she is liable to pay income tax on whichever is the lower of the following:

  • The market value of the shares when they were given to the employee or,
  • The value of the shares at the time of sale

Approved Profit Sharing Schemes are subject to a number of conditions that should be checked with the Revenue Commissioners. More information can be found on the Revenue website.

Share options in your employer's company

Revenue approved Savings-related Share Option Schemes allow you to save for and purchase share options in your employer's company tax effectively. You should check with the Revenue Commissioners and your employer as to what rules apply to your share options and when you are liable to pay tax. You can find information in Revenue's publication A Guide to Savings-Related Share Option Schemes (pdf) and in Revenue's eBrief No. 27/13.

Key Employee Engagement Programme (KEEP)

The Key Employee Engagement Programme allows small and medium-sized enterprises (SMEs) the use of share-based remuneration to key employees. Its aim is to enable SMEs to compete with larger enterprises in the recruitment and retention of key employees.

Under the KEEP programme, any gains to employees on the exercise of qualifying share options will not be subject to income tax, PRSI or USC at the date of exercise. The gain will instead be subject to Capital Gains Tax on a future disposal of the shares.

This incentive is available for qualifying share options granted between 1 January 2018 and 31 December 2023.

Further information about KEEP is available on the Revenue website (pdf).

Page edited: 24 January 2018