More details of the Key Employee Engagement Programme (KEEP) proposed for Irish SMEs in budget 2018 have been included in the recently published Finance Bill.
KEEP is subject to EU approval as well as enactment of the Finance Bill and will apply to options granted between 1 January 2018 and 31 December 2023.
I would encourage all Irish SMEs thinking of granting share options (either under a new or existing option scheme) to take legal and tax advice on whether their employees can qualify for the benefits available under KEEP.
KEEP allows gains made by Irish employees on exercise of share options to be taxed at CGT rates (33%) rather than income tax rates (>50%).
There are however a number of restrictions on qualification for KEEP which should be reviewed carefully, including:
- the granting company must be an SME (less than 250 employees and annual turnover of €50m or less and/or annual balance sheet of €43 million or less)
- the option shares must be ordinary shares
- the exercise price of the options must be the market value of the shares at the time of grant, so KEEP cannot be used as a mechanism for issuing cheap stock to employees
- individual limits apply per employee and no more than €3m of qualifying options can be granted in total
In particular there are a couple of conditions which seem to perversely punish SMEs which have significant growth ambitions:
- the company issuing the options must remain an SME during the entire period from grant of the options up to exercise of the options by the employee; and
- during the same period the company must not have any securities listed on any stock exchange (other than a listing on the ESM, the junior market of the Irish Stock Exchange)
Minister Donohoe publishes Finance Bill 2017