Tax-free stock options on the way to boost Irish startups
The Department of Finance is looking at the possibility of introducing a tax-advantaged share options scheme for small and medium-sized businesses.
The move could help home-grown firms retain key staff, it said.
The Department launched a public consultation yesterday seeking views on current 'Revenue approved' share schemes, and the tax treatment of other remuneration in the form of shares.
The Minister for Finance, Michael Noonan, said the share options move could boost employment and economic growth.
"International research has shown that when employees share in the profits of the company, this can be effective in fostering partnership, increasing competitiveness and in helping companies to attract and retain staff in a competitive international labour market," Mr Noonan said.
"This can then support employment and economic growth. Now is a good time to review the tax treatment of share based remuneration, including consideration of whether existing supports can be targeted more effectively." A pre-Budget submission from the Department of Jobs last year argued that while Ireland has general tax advantaged share measures, there is little incentive for employees to take stock options over cash.
"The critical impediment is the income tax, USC and PRSI that are currently triggered on the exercise of a share option ... which the employee must pay directly to Revenue with 30 days," the submission stated.
"No cash earnings arise directly from the exercise of share option. Employees working in SMEs, whose shares are not listed on a stock exchange and where there is no readily available market, do not have the option to sell a sufficient portion of their shares to generate the cash to pay the tax like their peers in listed companies."
The Department said the SME employee must find the cash for the tax payment from his or her own resources, unless the SME has sufficient internal funds for a share buyback.
"This places SMEs... and scaling companies at a competitive disadvantage when seeking to attract the talent to grow the business, to increase jobs and increase exports."
The Department of Jobs unsuccessfully called for the introduction in Budget 2016 of an SME tax advantaged share options scheme designed to enable smaller and fast growth companies to recruit and retain key employees
The Department of Finance said it is now looking at the issue because the Programme for a Partnership Government includes a commitment to explore an SME share reward scheme.
As part of its analysis of the submissions made, the Department will examine the tax treatment of share-based remuneration.
It will take into account the net Exchequer benefit, potential impact on economic growth and employment, compliance with EU State Aid rules and the overall position of the public finances. The closing date for the submissions is the start of July.