Friday 17 August 2018

Share options 'brain drain' risk for SMEs

Just 6pc of employees are shareholders in Ireland, compared to an average of 21.7pc throughout the EU. Stock photo
Just 6pc of employees are shareholders in Ireland, compared to an average of 21.7pc throughout the EU. Stock photo

Gretchen Friemann

The Government may delay tax changes designed to reduce the prohibitive expense of share-based remuneration schemes for SMEs, provoking concerns smaller companies will struggle to match multinationals for wages.

Gill Brennan, CEO of industry lobby group the Irish ProShare Association (IPSA), described the exiting legislation as "bonkers" and warned of a "brain drain" in the indigenous business sector if Finance Minister Paschal Donohoe fails to address the issue in tomorrow's Budget.

The IPSA argues the much-needed tax reform would bring Ireland into line with the UK and most of the EU. Just 6pc of employees are shareholders in Ireland, compared to an average of 21.7pc throughout the EU.

The discrepancy stems from the steep costs of the current regime. Under the existing rules, SME employees are required to pay the marginal tax rate of 52pc on share options, even though the income on the investment has not been realised.

The IPSA is campaigning to change this and has urged Mr Donohoe to introduce a regime similar to the UK's long-standing policy, which levies a capital gains tax once the share options are exercised.

According to Ms Brennan, this helps small, high-risk companies "retain key staff" and improve productivity.

In the UK, options worth up to £250,000 (€278,000) can be granted tax free to qualifying employees.

The lack of a similar incentive in Ireland has resulted in "many companies losing top talent to multinationals," according to Ms Brennan. She said SMEs are also losing staff to small companies in other EU countries that have more competitive rules around employee share schemes.

Irish Independent

Business Newsletter

Read the leading stories from the world of Business.

Also in Business