Section 10 Finance Bill 2017

  • Department of Finance public consultation 2016
  • Tax efficient share option scheme for employees and directors in SME sector
  • Income tax, PRSI and USC exemption on share option gain on exercise of qualifying share options
  • CGT treatment on disposal - base cost exercise price
  • Share options granted in the period from 1 January 2018 to 31 December 2023

Qualifying Share Options

  • New ordinarily fully paid up shares in qualifying company
  • No preferential current or future rights to dividends, asset on winding up or redemption
  • Option price at date of grant cannot be less than market value of shares on that date
  • Written contract setting out number and type of shares, option price, exercise period
  • Options cannot be exercised within 12 months of grant other than in limited circumstances
  • Option cannot be exercised more than 10 years after date of grant
  • Options granted for bona fide commercial purposes

Qualifying Company

  • Ireland / EEA incorporated and Irish resident or carrying on a business in Ireland through a branch or agency (Committee Stage Amendment)
  • Must be carrying on trading activities other than excluded activities such as:
    • Professional services,
    • Financial activities
    • Dealing in and developing land, building and construction,
    • Forestry,
    • Coal, steel and shipbuilding
    • Adventures or concerns in the nature of a trade

Qualifying Company

At the date of grant of the option

  • The company must be an SME:
    • Less than 250 employees,
    • less than €50m turnover, and / or
    • less than €43m balance sheet
  • Total market value of issued but unexercised qualifying options must be less than€3m

Qualifying Company

Throughout the relevant period (i.e., date of grant to date of exercise):

  • The company must be unquoted, other than Irish Enterprise Securities Market (ESM) or its equivalent in EEA / DTA country - Committee Stage Amendment
  • It cannot be a company in difficulty under EU State aid rules

Holding Companies

  • Business must consist wholly of holding shares in a qualifying company
  • Shares in subsidiary must be directly held
  • 100% issued share capital ownership condition

Qualifying Individuals

Throughout the relevant period (i.e. date of grant to date of exercise):

  • Must be a fulltime employee / director
  • At least 30 hours per week
  • Office / employment capable of lasting more than 12 months
  • Working time conditions satisfied if share options exercised within 90 days of leaving office / employment of the qualifying company
  • Cease to be qualifying individual if, together with connected parties, directly or indirectly becomes beneficial owner of more than 15% of the ordinary share capital during option period

Qualifying Individuals

Limits on the relief per individual

  • Market value of all shares in respect of which qualifying share options have been granted by the qualifying company to an employee or director cannot exceed:
    • €100,00 in any one tax year,
    • €250,000 in any three consecutive tax years, or
    • 50% of the annual emoluments of the qualifying individual in the year of assessment in which the qualifying share option is granted.
  • Limits the scope of the relief where the individuals in question earn a relatively low salary in a company with high-growth potential
  • Valuation date not explicit in legislation – Revenue Guidance to confirm if date of grant

Other Provisions

  • If relief claimed under KEEP cannot claim EIIS relief on cost of acquiring shares (Committee Stage amendment)
  • Reporting requirements for qualifying company by 31 March of following tax year – disqualifies company if not complied with
  • Ministerial Order required for Commencement

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.