Ireland – Employee Share Ownership Plans & Types

Ireland – ESOP World Forum Ireland APSSemployee share ownership is encouraged and supported by government initiatives and is widely welcomed by employees and unions. Companies and employees can avail of certain share plans that may be ‘tax free’ or ‘tax efficient’ to both parties.

In particular, schemes offer a variety of advantages as follows:

  1. A cost-effective way to of reward and motivate key staff. Giving employees a stake in the business is more efficient and less expensive than cash bonuses or pay rises.
  2. Effective employee retention, offering a deferred reward encourages loyalty to the company and can increase productivity amongst employees
  3. If you want employees to act like owners make them owners – involving employees is a proven way to increase the success / performance of a business.
  4. Employees and employers can make significant tax savings for  depending on the type of scheme scheme.
  5. The setup and operating costs of share schemes are deductible for corporation tax purposes. Currently (2015) employer social insurance (PRSI) is saved on share-based benefits though employee PRSI may be payable.
  6. There can be significant advantages of offering shares as remuneration in a ‘bear’ market giving employees scope for greater returns as the economy improves.
  7. Share schemes can set the groundwork for business exit strategy.

Recent budgets have made a number of changes to the tax treatment of gains from share schemes, including liability for  the Universal Social Charge (USC) and PRSI.

Ireland – Employee Share Ownership & Incentive Plan Types

The following are some of the main types of employee share incentive schemes in Ireland:Ireland ESOP APSS Legislation

  • Approved Profit Sharing Schemes (APSS)
  • Employee Share Ownership Trusts (ESOT)
  • Unapproved Share Option Schemes
  • “Save As You Earn” Share Option Schemes (SAYE)
  • Employee Share Ownership Trusts (ESOT)
  • Restricted Stock Schemes / Share Clog Schemes
  • Partly Paid Shares Schemes
  • Phantom Option Schemes

Overview of employee share plan types

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).

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“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.

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Employee Share Ownership Trusts – ESOT

An ESOT is usually set up in parallel with an APSS. The company make payment to the ESOT to buy shares to distribute to its employees and can make tax deductions for the expense. Most of these in Ireland have been set up by “semi-state” bodies.

Unapproved Share Option Schemes

 

Restricted Stock Schemes

 

Partly Paid Share Schemes

Phantom Option Schemes

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