As part of the 2017 Finance Act, Ireland created a new tax-favorable employee share option incentive scheme, known as the Key Employee Engagement Programme (KEEP) for small-to-medium enterprises (SMEs) in Ireland.
Under the legislation, stock options granted as of January 1, 2018, through December 31, 2023 by SMEs to its employees will receive tax-preferential treatment, provided certain requirements are met. Qualifying options will not be subject to income tax, employee/employer Pay Related Social Insurance (PRSI) or Universal Social Charge (USC) at the time of exercise (as is the case with regular stock options). Instead, taxation will be deferred until the time of sale of the shares, at which time the gain will be subject to lower capital gains tax rates. Among other requirements, the legislation imposes limitations on the value of stock options that may be granted to each employee on an annual basis and also limits the time period during which the qualifying options may be exercised.
In order to qualify as a SME in Ireland, companies must satisfy certain requirements, including not exceeding thresholds in relation to the number of employees and annual income and/or annual balance sheet totals, all measured at the time of grant of the options. Companies granting qualifying stock options under a KEEP also must comply with specific reporting requirements.