Business Irish

Saturday 18 August 2018

Defer the tax on shares to help SMEs, urges ISE

Under the existing system, staff have been forced to sell shares just to pay their tax bill and at the higher marginal income tax level. (Stock image)
Under the existing system, staff have been forced to sell shares just to pay their tax bill and at the higher marginal income tax level. (Stock image)
Donal O'Donovan

Donal O'Donovan

Share options for employees at SMEs should only be taxed when the stock is sold, and at the Capital Gains Tax rate, to help businesses here compete for staff and retain key employees, the Irish Stock Exchange (ISE) has said.

In its pre-Budget submission, the ISE warned that Ireland is overly reliant on multinationals for employment and corporation tax receipts.

Foreign multinationals accounted for around 80pc of corporation tax income and quarter of all jobs, but the sector could be under threat, the submission said.

"Brexit, the potential for EU tax-base changes and US trade and tax reforms have created significant uncertainty for Ireland's FDI sector and the ISE believes support for the Irish indigenous sector is critical at this time."

Indigenous industry created more ancillary jobs than multinationals, it noted.

However, the ISE said the tax regime needed to be changed to make it easier for firms here to raise capital and attract both Irish and international investment, base, cut their business in Ireland, incentivise key people and invest in new products.

The Government committed in Budget 2017 to creating a new share option scheme for SMEs but has yet to come up with firm proposals, the ISE noted.

Under the existing system, staff have been forced to sell shares just to pay their tax bill and at the higher marginal income tax level, it said.

Under its proposal, tax on share awards would be deferred until to the stock is sold.

The tax applicable should be charged at the CGT rate, rather than the income tax rate, it said.

"The ISE believes Ireland has lost competitiveness vis-à-vis other jurisdictions, particularly our nearest neighbour, the UK, in respect to the tax treatment for share-based remuneration.

"In Ireland the tax treatment of share awards, and specifically share options, is not attractive and it can be difficult to use options as a tool to motivate employees, particularly for growth companies," it argued.

Other recommendations that the ISE made for Budget 2018 would see stamp duty scrapped on investment, capital gains tax rates lowered and the entrepreneurial relief scheme for investors simplified in an effort to encourage equity investment and influence individuals to locate businesses in Ireland.

The entrepreneurial relief scheme for investors is restrictive and uncompetitive, the ISE said in its submission ahead of next month's Budget.

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