EU Approves Irish SME Share Scheme

by Jason Gorringe, Tax-News.com, London

20 December 2017

The European Commission has approved an Irish tax incentive for employee share schemes offered by SMEs – the Key Employee Engagement Programme (KEEP).

The measure was introduced under the Irish Government's 2017 Finance Bill. Before KEEP could enter into force, the Government needed to receive approval from the Commission under EU state aid rules.

The Commission has now given its approval. It said that the scheme will allow SMEs to recruit and retain employees, without unduly distorting competition in the single market.

Under KEEP, any gain arising from the exercise of qualifying share options will be subject to capital gains tax (CGT) at the time of the disposal of the shares. CGT (currently at 33 percent) will be applied in place of income tax, Universal Social Charge, and pay-related social insurance.

The shares must be held for a minimum period of one year before exercise (with limited exceptions). They must be exercised within 10 years of the grant.

The Commission said that such government intervention is necessary to facilitate Irish SMEs' efforts to attract and retain employees, and to enable these companies to contribute further to economic growth and innovation.

The Commission noted that SMEs in Ireland often do not have the financial resources available to offer employees competitive remuneration packages.

According to the Commission, when provided on top of a fixed wage, these employee share options could enhance the ability of SMEs to attract and retain staff without the need to find immediate additional financial resources.

TAGS: capital gains tax (CGT) | compliance | tax | small business | business | European Commission | tax compliance | Ireland | tax incentives | share schemes | employees | small and medium-sized enterprises (SME) | tax rates | tax breaks | tax reform | European Union (EU) | Europe