Ireland – ESOP / APSS Plan tax and taxation
Ireland – Employee Share Ownership Plans ESOP / SAYE / RSU / APSS plan tax and taxation rules are defined by legislation that is administered by The Revenue Commissioners. Companies and employees can benefit from certain share plan types that may be ‘tax free’ or ‘tax efficient’ to both.
The details on this page are current as of 2015 and are provided for information purposes and the tax rules applying to any particular plan should be checked with The Revenue and you own Accountants and Tax Advisors.
Popularity of share plans are increasing in Ireland when companies can save €100,000 or more from their implementation. Even medium sized Irish companies with modest plans can make significant savings with employers’ PRSI currently at 10.75% a company with 100 employees putting €50-100 per month plus a €1,000 bonus into an APSS, could be saving
- €17,200-€23,600 per year employers PRSI
- plus tax relief on setup and running costs,
- plus salary relief from the employee satisfaction of tax, USC and PRSI savings and potential capital gain as part of their income
- plus higher productivity and saving from lower staff turnover costs
Savings increase for both company and employees where more is invested in the scheme.
Ireland – Which Employee Share Ownership Type
In Ireland tend to be Semi-state bodies but can be wider
Requires Revenue Approval
Share are held in Trust with Trustees – ESOT
Employee is not a shareholder until share distribution
Company Tax relief for
- Setup Costs
- Contributions to trust to purchase shares
ESOT Trust can use shares to
- reduce capital borrowings
- transfer to an APSS for employee distribution
Employee Tax implications
- Payments from ESOT are taxable as income
- Payments from APSS more tax efficient (see below)
In Ireland most popular private & public company plan type
Requires Revenue Approval
Company Tax Relief on
- Setup & Administration costs
- Employers PRSI on employee awards (currently 10.75%)
Employee Tax relief on maximum value of €12,700 per annum
- income tax (where share are held for 3 years in trust)
Employer must collect
- USC & PRSI on share value on appropriation (up 8% in 2015)
Requires Approval by Revenue
Company tax relief on setup and running costs
Employee not shareholder until exercise
- Saving Scheme for 3, 5 or 7 years.
- Employee granted options at discount to market value
- No Income tax, DIRT, USC, PRSI on grant or interest.
- No income tax of gain at exercise
- Employe must collect USC, PRSI on gain at exercise
In Ireland used to avoid complexity of many minor shareholders
Usually Option to acquire shares at later date and price conditions
Taxation event occurs on exercise (or transfer)
Income Tax, USC, PAYE can be due by employee (not employer) as self-assessed.
Overview of taxation of employee share plan by type
Approved Profit Sharing Schemes – APSS
Approved Profit Sharing Schemes (APSS) allow an employer to give employees shares in the company up to a maximum value of €12,700 per year tax-free. APSSs are subject to conditions administered by the Revenue Commissioners. Normally in an Approved Profit Sharing Scheme the employees are given the right to convert a profit share bonus into shares in the company of their employer.
Providing the APSS meets the conditions, an employee pays no tax on shares up to a maximum value of €12,700 per annum. The employer must hold the shares for a time (called the “retention period”) and the employee must not sell the shares within three years. If an employee sells shares within three years, they are liable to pay income tax on the lower of:
- 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 in Revenue’s publication Approved Profit Sharing Schemes IT62 (pdf).
More Details on APSS Button Here
“Save As You Earn” Share Schemes – SAYE
These schemes are for public and private companies that meet the qualifying criteria (e.g. a private company must not be under the control of another private company). All employees who have been with the company for a similar minimum period of time (duration decided when setting up the scheme but must be less than three years) must be eligible to join and participate on the same or similar terms. The rules can factor in employees length of service, salary or other similar condition.
In summary this is a regular savings plan with between €12-€500 per month saved for a period such as two, four or seven years. At the end of the period the employee can use the saving to buy shares or take it as tax free case. For shares purchased, income tax is saved on grant and exercise, USC and PRSI saved on grant, share options are granted on the basis of savings, with no obligation to buy shares. Plans need individual approval by Revenue.