Option shares tax
There is no Income Tax charged on the dividends that are paid out. All shares held under the scheme must be ordinary, non-redeemable and fully paid-up, but they can be subject to voting and disposal restrictions, and will also need to be held for at least five years before being sold. The company will need to set up a trust to hold the shares, for a holding period between three and five years. However, Corporation Tax Relief can be obtained by the company for the cost of setting up and administering the scheme.
The SAYE scheme again has to be made available to all employees. However, the company can specify a qualifying period of employment of upto five years. Provided that the minimum option period of three years is observed, there is no Income Tax charge on the grant or exercise of the option. Companies will receive Corporation Tax Relief on the cost of establishing and administering the scheme, and at the date on which shares are issued.
The option period must be between 3 and 10 years. Income Tax and NI are not due when the option is granted or exercised, making this scheme very tax efficient, however, a potential barrier to its use lies in the fact that any options issued must be in the ultimate parent company of a group, and must be of the same class as those held by the group controllers, and will not be subject to any restrictions in terms of voting rights, etc.
The chief benefit of using an EMI Scheme is that no Income Tax or NI contributions are charged on the grant of EMI options, and, provided that i the exercise price is at least equal to the market value at the date of grant, and ii the options continue to qualify until the date of exercise which must be within ten years from the date of grant , then there will also be no Income Tax or NI charge at the point of exercise.
Any cash cancellation payment paid in lieu of exercising the options will not enjoy the same tax treatment and will be subject to Income Tax and NI. Further, if options are granted at a discount on the market value, then there will be an Income Tax charge on the difference between the actual price paid at the time of exercise and the market value at the date of grant, together with a likely NI charge.
As with the CSOP, the EMI scheme is discretionary, and the options have to be for ordinary, irredeemable and fully paid-up shares in the ultimate group parent company. Unlike the CSOP, there are various eligibility criteria that must be met by both the company and its employees in order to qualify for the EMI scheme.
Other restrictions also apply depending upon the activities of the business. For more information on this topic please see our separate Quick Guide found here. Please note that where such an election is not made, the employer will have an unknown liability to consider and disclose in its annual accounts, which can create problems for accounting purposes.
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. 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. 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 and 31 December If you have a question relating to this topic you can contact the Citizens Information Phone Service on 07 Monday to Friday, 9am to 8pm or you can visit your local Citizens Information Centre. Introduction Employees can avail of certain share options from their company that may be 'tax free' or 'tax efficient'. There are 3 main ways in which an employee can benefit from shares in the company: 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.
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.
Some assets are exempt from Capital Gains Tax. Find out if you are liable for Capital Gains Tax. Capital Acquisitions Tax If you receive a gift, you may have to pay gift tax on it.