Share schemes are an integral aspect of incentivising employees and creating loyalty within companies in Ireland. However, along with the benefits they offer, there are specific reporting requirements that employers and trustees must adhere to. Below, we’ll delve into the aspects of share scheme reporting in Ireland, highlighting various types of share schemes, their respective forms, and the obligations associated with them.
Types of Share Schemes and Their Forms
Employer’s Share Awards (ESA) Scheme (Form ESA1)
The Employer’s Share Awards (ESA) scheme is whereby companies grant share-based rewards to their employees. Form ESA1 is used to report the following awards: Restricted Stock Units, Restricted Shares, Convertible Shares, Forfeitable Shares and Discounted Shares (e.g., shares acquired via stock purchase rights not treated as stock options for Irish tax purposes).
Restricted Stock Scheme (RSS) (Form RSS1)
A Restricted Stock Scheme (RSS) involves granting employees stock in the company, subject to certain restrictions or conditions. These conditions may include a specified vesting period or performance targets. Form RSS1 is used to report information about the scheme, such as the participants, the number of shares granted, and the applicable restrictions.
Key Employee Engagement Programme (KEEP) Scheme (Form KEEP1)
The Key Employee Engagement Programme (KEEP) scheme is designed to incentivise key employees in small and medium-sized enterprises (SMEs) by granting them share options. These options are subject to specific criteria and can provide favourable tax treatment for both employers and employees. Form KEEP1 is used to report details of the scheme, including participants, option grants, and tax implications.
Employee Share Ownership Trust (ESOT) (Form ESOT1)
An Employee Share Ownership Trust (ESOT) is a trust established by a company to hold shares on behalf of its employees. It allows employees to have a beneficial ownership interest in the company without directly owning the shares. Form ESOT1 is used to report information about the trust, including its beneficiaries, the shares held, and any transactions involving the shares.
Employee Share Scheme (ESS) (Form ESS1)
An Employee Share Scheme (ESS) encompasses various share-based incentives offered to employees, including share options, share purchase plans, and share awards. Form ESS1 is a general form used to report information about these schemes, such as participants, share transactions, and tax implications.
Save As You Earn (SAYE) Scheme (Form SRSO1)
The Save As You Earn (SAYE) scheme allows employees to save a portion of their salary over a specified period to purchase shares in their company at a predetermined price. This scheme provides employees with a convenient way to acquire shares while offering tax benefits. Form SRSO1 is used to report details of the scheme, including participants, savings contributions, and share purchases.
Reporting Obligations
Employers and trustees operating share schemes in Ireland are required to file an annual return with Revenue by 31 March. The standard filing deadline is 31 March following the year in which the activity arose. For example, returns in respect of 2023 activity are due by 31 March 2024. This annual return must include comprehensive information about the share schemes, including details of participants, share transactions, and any tax implications arising from the schemes.
Certain share options offered by their employer may not be subject to income tax for employees.
Employees who own business stock can profit from it in a number of different ways:
- Approved Profit-Sharing Schemes
- Share Options
- Key Employee Engagement Programme (KEEP) Share Options
Profit Sharing Schemes that are approved permit an employer to give an employee shares in the company up to a maximum value of €12,700 per year. If the scheme satisfies the necessary requirements, you won’t be obliged to pay income tax on shares up to the maximum value. The shares are subject to a holding period (referred to as the “retention period”) by the employer, and you are not allowed to sell the shares before the three-year mark. Should you sell the shares before their expiration, you will have to pay income tax on the lesser of:
- When the shares were delivered to you, their market value, or
- The share price at the time of selling
Universal Social Charge (USC) and Pay Related Social Insurance (PRSI) apply to gains accruing from various sharing plans. On the KEEP programme, however, gains on share options are liable to capital gains tax. The standard rate of Capital Gains Tax is 33% of the chargeable gain you make.
It is essential for employers and trustees to understand their reporting obligations to ensure compliance with tax laws and regulations. By familiarising themselves with the different types of share schemes and their respective forms, businesses can navigate the complexities of share scheme reporting in Ireland effectively and maintain regulatory compliance while reaping the benefits of these incentivisation tools.
