Where an employee or director exercises a share option, they are subject to income tax on the difference between the market value of the shares acquired and the price paid for those shares. They can face difficulties in financing the tax liability where they do not immediately dispose of the shares received on exercise of the option.
The Key Employee Engagement Programme (KEEP) is a tax efficient share option scheme for qualifying share options granted between 1 January 2018 to 31 December 2025.
Under KEEP individuals can have an option to acquire shares at a future date at a fixed price.
Individuals do not pay any tax on the grant of the KEEP options.
They will not have to pay income tax, USC and PRSI when they exercise their option if the shares have increased in value.
The employer will report details to the Revenue Commissioners (Revenue) on the KEEP options granted to employees and on the KEEP options exercised by employees.
Qualifying conditions
To qualify for the beneficial tax treatment, there are several conditions to be satisfied in relation to the share options, employees and qualifying company:
- Share Options
The option cannot be held for longer than ten years or exercised within the first 12 months of the granting date. - Employees
To qualify for the beneficial tax treatment employees must be employees or directors throughout the exercise period and work at least 20 hours per week or devote not less than 75% of their working time to the qualifying company.
Employees are not eligible to participate if they hold a material interest (>15%) in the ordinary share capital of the qualifying company or in the case of a qualifying group, the qualifying holding company. - Qualifying Company
The company must (a) be incorporated in the State or in another EEA State or in the United Kingdom and resident in Ireland or (b) be resident in another EEA State or in the United Kingdom and carrying on business in the State through a branch or agency.
It must exist wholly or mainly for the purpose of carrying on a “qualifying trade” on a commercial basis with a view to the realisation of profits/gains which are liable to tax under Case I Schedule D.
Capital Gains Tax (CGT)
If holders of qualifying shares have exercised their options and later dispose of their shares, they may be liable to CGT. This disposal must be reported by employees to Revenue even if no tax is due.
In calculating the chargeable gain, the amount paid at the acquisition date is used as the cost of acquisition.
The above is for information purposes only and does not constitute professional advice