Introduction

This quick reference guide sets out basic tax treatment for different types of share award based on the position as at January 2014.

Share Awards – Free/Discounted Shares

Tax charge: Income Tax and USC is payable at the employee’s marginal rates on the value of the shares received when the employee becomes entitled to them (less any price paid).

Employee Social Security: Employee’s PRSI arises on the receipt of free/ discounted shares on the value of the shares received (less any price paid).

Employer Social Security: Employer’s PRSI does not apply to share based remuneration.

Withholding/Payment: Employers must withhold income tax, USC and PRSI through payroll. The value of any shares awarded (less any price paid) is to be treated as notional pay at the time the shares are given to the employee. If the liability exceeds the employee’s pay, the employer is obliged to account for and remit the total tax and PRSI due on the combined actual and notional pay with the relevant monthly P30 return. The tax must be recouped from the employee in full by 31 March of the following tax year, or the employee will be deemed to have received a further benefit. Where there is a delay between vesting and settlement of awards, Revenue may accept tax payment by reference to the earlier of (i) settlement and (ii) sixty days from vesting, but the taxable amount is still calculated by reference to value at vesting. However, all tax for shares vesting in a tax year must be paid by the last P30 filing date for the particular year and employees who cease service must pay their tax on cessation of employment.

Reporting: Income Tax, USC and PRSI are to be remitted by the employer with the relevant monthly P30 return.

Share Options

Tax Charge: There is no tax at grant of an unapproved share option, provided it is granted at market value or has a life of less than seven years. Income Tax and USC are imposed on exercise of an option on the difference between the market value at exercise and the option price payable.

Employee Social Security: Employee’s PRSI arises on exercise of an option on the difference between the market value at exercise and the option price payable.

Employer Social Security: Employer’s PRSI does not apply to share based awards.

Withholding/Payment: The employee must pay the income tax, USC and PRSI which are due within thirty days of the date of exercise. Income tax is paid at the marginal rate (unless agreed in advance with Revenue that the lower 20% rate applies). Payment is made by the employee under the RTSO procedure and form RTSO1 must be filed. Gains made on exercise of unapproved share options are not chargeable to the 3% USC surcharge (i.e. the 10% rate does not apply).

Reporting: As well as filing Form RTSO1, the employee should include details of options exercised on an annual self-assessment tax return. The employer must file an annual return with Revenue regarding options granted and exercised (Form RSS1). This form must be filed by 31 March after the end of the relevant tax year.

Approved Profit Sharing Schemes (APSS)

Tax charge: USC is payable on the value of shares appropriated to an employee under an APSS (both bonus and salary forgone funds) even though such shares are generally free of income tax. Salary used to pay USC is itself taxable.

Employee Social Security: Employee’s PRSI is payable on the value of shares appropriated to an employee under an APSS (both bonus and salary foregone funds).

Employer Social Security: Employer’s PRSI does not apply to share based awards.

Withholding/Payment: Any USC and PRSI arising should be collected by the employer through payroll at the time the appropriation is made. USC and PRSI on salary foregone may either be deducted at the time the salary is foregone or at the time of appropriation, provided in either case USC and PRSI is paid on the full value of the shares that are appropriated.

Reporting: The Trustees of an APSS are obliged to file an annual return with the Revenue Commissioners regarding the Scheme (Form ESS1 due by 31 March of the following tax year).

Revenue Approved Sharesave (SAYE)

Schemes Tax charge: USC will arise on the gain realised on the exercise of Revenue Approved SAYE options, even though such options are generally free of income tax.

Employee Social Security: Employee’s PRSI arises on the exercise of an SAYE option.

Employer Social Security: Employer’s PRSI does not apply to share based awards.

Withholding/Payment: The employer is liable to deduct and pay USC and employee’s PRSI through the payroll system when options are exercised by current employees. If the employee exercising the option is a former employee, USC and PRSI are payable by the participant under the normal self-assessment system (for USC) and via the PRSI special collection system (for PRSI).

Reporting: Employers are obliged to file an annual return with Revenue regarding options granted and exercised under an SAYE Scheme (Form SRS01 due by 31 March of the following tax year).

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Notes

Note 1: The above summary applies for 2014. Different rules applied in prior years, e.g. PRSI grandfathering in 2011.

Note 2: The information provided in the summary and table is intended as a general summary only as at January 2014 and does not constitute tax advice. Specific advice should be obtained regarding any particular share award and the related tax treatment as required. The summary and table also assume that employees are at all times domiciled, resident and ordinarily resident in Ireland for tax purposes and that the awards relate solely to an Irish employment.

Note 3: For the purposes of this summary and table it is assumed that all share based remuneration referred to relates to shares in an employer company or its parent.