Tax breaks on share awards
Most of the Revenue-approved, tax efficient methods of giving an equity stake to employees in an employer company have been abolished, with the higher rate of income tax, USC and employee PRSI imposed on the discount given on the value of shares granted. Today’s Irish Times has an interesting article about MNCs lobbying for the reintroduction of tax breaks on share options, with four suggestions outlined to improve the tax treatment. http://www.irishtimes.com/business/economy/us-firms-push-for-tax-breaks-on-irish-share-options-1.2711570
Not mentioned in the article are the other issues with the current tax code dealing with share-based remuneration:
all awards other than share options are subject to PAYE, meaning the employer has to fund the upfront cashflow required to pay the tax on taxable share schemes
share options are subject to self-assessment, meaning the employee funds the tax. Usually, this involves selling the shares almost immediately as they only have 30 days to pay the tax. This makes giving share options in private companies less attractive, given the absence of a ready market for the shares.
our legislation does not allow for the new types of share schemes being introduced, such as restricted stock units (RSUs), phantom shares, growth shares etc. We are forced to rely on Revenue eBriefs and publications setting out their view of how such schemes should be taxed, which is not ideal.
An increasing number of start up and expanding companies are giving employees, particularly key hires, equity to incentivise and retain important staff members. Reform is required.
At the earliest, we will hear about any changes in the Budget or perhaps Finance Bill 2016. I will be representing the Irish Tax Institute (ITI) when the Finance Bill is published, meeting with Dept. of Finance officials to gain insight into the new legislation and delivering the ITI’s nationwide Finance Bill tour to members. I welcome your thoughts, comments, suggestions and ideas on this or any other tax issue you feel needs legislative change.