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Uptake for 'KEEP' share option scheme a fraction of estimates

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KPMG's Thalia O'Toole

KPMG's Thalia O'Toole

KPMG's Thalia O'Toole

A tax scheme introduced in 2018 to help smaller firms compete with multinationals by giving shares to employees is having little effect and needs to be overhauled, Government has been told.

Consultants KPMG said the Key Employee Engagement Programme (KEEP), a tax incentive on shares in small and medium-sized firms, cost €600,000 in 2021, well below its budgeted cost of €10m.

“The low uptake of this tax incentive points to the fact that the rules and conditions underpinning the scheme are too complex and do not correlate to the commercial reality of how SMEs operate,” said Thalia O’Toole, KPMG’s tax director.

KEEP was introduced in 2018 to help start ups and smaller firms lure staff.

It exempts workers and directors from paying income tax, USC or PRSI on their shares, and defers capital gains tax until the shares are sold.

But KPMG said accessing the scheme was complex and costly, with uncertainty over the tax treatment of share buybacks and too-rigid limits on share valuation and the kinds of companies and workers that can participate in the scheme.

“A more flexible scheme is needed to help level the playing field for smaller domestic businesses struggling to attract and retain key workers and who cannot match the salaries paid by larger employers, ” said Ms O’Toole.

KPMG has made a formal submission as part of a Department of Finance review of the scheme ahead of the next budget.

The Irish ProShare Association (IPSA) lobby group has also criticised KEEP as too complex and said it would need to be “significantly reformed” if it is to help smaller firms attract workers.

Ministers have said that they were considering changes to how capital gains are treated under the scheme.

The Government believes a reform of KEEP is the next step in making Ireland more attractive to start ups, after it extended tax relief for equity investors in Budget 2022 and launched a €90m seed fund for start ups.

KEEP is not the only scheme that has seen a low take-up. The Special Assignee Relief Programme – a partial tax exemption for foreign workers posted to Ireland – was used by just 1,500 people in 2018.

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