Thursday 22 February 2018

EC clears way to cut share options tax for startups

Magdalena Andersson, Sweden's finance minister. Photo: Bloomberg
Magdalena Andersson, Sweden's finance minister. Photo: Bloomberg

Adrian Weckler - Technology Editor

Irish technology, business and tax lobbyists have warned a failure to cut taxes on startup share options could encourage entrepreneurs to look elsewhere.

The calls come after the European Commission gave Sweden the go-ahead to eliminate income taxes on share options at startup companies.

The move, which will see an end to the taxing of stock options as income at young companies with fewer than 50 employees, is being seized on as evidence that Irish small firms need more support from taxation authorities here to compete.

"If there's one issue that needs urgent redress, it's this," said the head of Tech Ireland, Niamh Bushnell.

"The system around stock options today in Ireland creates a disincentive to talent and to risk-taking, two key ingredients of a scaling innovation ecosystem," she said.

"This is even more so when other countries see the light well before we do and make the playing field even more competitive."

Local startup entrepreneurs, such as former Twitter boss and Storyful founder Mark Little have complained that Irish tax law threatens the viability of Ireland-based technology startups. Dublin-based venture capital executives such as Draper Esprit partner Brian Caulfield have also criticised Ireland's lack of tax friendliness to startups in comparison to countries such as the UK.

"A workable share-based employee scheme is now required for SMEs that would enable them to attract and retain the best talent," said a spokeswoman for the Irish Tax Institute.

"The UK's Enterprise Management Initiative is a good model to consider where capital gains tax is payable by taxpayers when they sell their shares and have the funds to pay the tax," she added.

Under recent changes to UK law, share options with a market value of up to £250,000 (€284,000) can be granted tax-free to employees of independent trading companies that have fewer than 250 employees and gross assets not exceeding £30m (€34m).

Under Sweden's new rules, income taxes on stock options at smaller startup companies will eliminated.

Companies will be exempt from payroll levies on the stock options, which will be taxed as capital when they are sold.

The move is being undertaken by Sweden, under finance minister Magdalena Andersson, as a competitive measure to stop the perceived brain drain of its tech community to European city hubs such as London and Berlin.

Sweden, which is the home of the global music-streaming giant Spotify, has the highest number of 'unicorn' technology companies per capita in Europe.

Irish Independent

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