There are a number of share schemes available to companies, each with its own set of rules, tax treatments and reporting requirements. Below is an overview of the main schemes and their key features.
APPROVED PROFIT SHARING SCHEMES (APSS’s)
An APSS must be set up under a trust deed and must receive Revenue approval. Once approval has been obtained an employee can receive shares up to a value of €12,700 per year tax free. The shares must be left in the trust for three years for full tax-free status to be maintained. If the shares are disposed of before the Release Date the employee is charged to income tax on the lesser of the market value of the shares at the date of appropriation or the sales proceeds. Capital gains tax may also arise on the eventual disposal of the shares.
Participation is open to all full-time directors or full-time and part-time employees chargeable to tax under Schedule E once they satisfy the qualifying period (not more than 3 years). Shares cannot be allocated to an individual owning more than 15% of the company where it is a close company.
SAVE AS YOU EARN SCHEMES (SAYE’s)
Under an SAYE scheme, employee’s save a certain portion of their monthly, after tax salaries into a certified contractual savings scheme over a 3 year period. At the end of the savings period the accumulated fund can be used to purchase shares in the employer company. The shares can be purchased at a discount of up to 25% of the market value at that date. Employees are allowed to save a minimum of €12 or a maximum of €500 per month from net income.
All employees and full time directors of the company who have been employed for a qualifying period (not more than 3 years) must be eligible to participate in the scheme. However, any person who held at any time in the previous 12 months a material interest in the company cannot participate.
An SAYE scheme must receive approval from Revenue. Once approval has been obtained income tax will not apply to the gain arising at the date of exercise of the SAYE option. Instead, capital gains tax will be chargeable on any gain arising on disposal of the shares.
APPROVED SHARE OPTION SCHEMES (ASOSs)
Under an ASOS there will be no income tax charge at date of grant or at date of exercise. Instead the individual will be subject to capital gains tax on the disposal of the shares on the difference between the amount paid for the shares under the option and the sale proceeds.
In order to gain Revenue approval certain conditions must be met, including:
- Shares must not be disposed of for at least 3 years from date of grant.
- Option price must not be less than market value of shares at date of grant.
- The scheme must be open to all employees and all employees must be able to participate in the scheme under similar terms.
However it is permitted for the scheme to contain a “key employee” element where options can be granted without the similar terms conditions. Nevertheless not more than 30% of the options granted in a particular year can come under this key employee provision.
UNAPPROVED SHARE OPTION SCHEMES
Under an unapproved share option scheme the tax treatment is as follows:
Grant of Option
Where an option granted to an employee is exercisable within seven years of grant, no charge to income tax arises at date of grant. Where the option granted can be exercised later than seven years after its grant, the employee will be subject to income tax on the difference between the market value of the shares at the date of grant and the option price.
Exercise of Option
On exercise the employee will be subject to income tax on the difference between the option price and the market value of the shares at that date. Where appropriate a credit is available for any tax paid on grant of the option.
With effect from 30 June 2003, any income tax arising on the exercise of the option must be paid to Revenue within 30 days of the exercise.
Disposal of Shares
The disposal of shares by an employee will give rise to a charge to CGT. The taxable amount is calculated based on the difference between the sales proceeds and the original option price paid by the employee for those shares.
In addition, a deduction will be available for any amount chargeable to income tax on the exercise of the share option.
EMPLOYEE SHARE PURCHASE PLAN
Under this scheme, certain employees or directors can claim a deduction against their total income for the cost of purchasing shares in his/her employer company. The maximum lifetime deduction allowed per employee is €6,350. Certain conditions must be fulfilled in order to qualify for this deduction, including:
- Shares must be issued in a “qualifying company”, i.e. a company which is:
- incorporated in Ireland,
- resident in Ireland and not resident elsewhere, and
- a trading company that carries on its business wholly or mainly in Ireland, or a holding company whose business consists wholly or mainly of the holding of shares of such trading companies that are its 75% subsidiaries.
- Shares must be new shares that form part of the ordinary share capital of the company.
- Shares must be subscribed for at not less than market value.
Where the shares are disposed of within three years, there will be a claw-back of the income tax relief, except in the event of a reorganisation of the company’s share capital.