176. Deputy Ann Graves asked the Tánaiste and Minister for Finance to address the taxation issues faced by Irish employees who receive share options as part of their employment via existing unapproved share option schemes; and if he will specifically consider immediate changes to the taxation of unapproved employee options schemes (details supplied). [66781/26]

Ireland provides a range of share-based remuneration programmes including share options and direct share award schemes. The tax treatment applicable will depend on the specific scheme being offered. Broadly a distinction can be made based on ‘approved schemes’, which benefit from preferential tax treatment where the relevant statutory conditions are met, and ‘unapproved schemes’ which are typically subject to Income Tax, with some exceptions.

Unapproved Schemes

An unapproved share option is a right granted to an employee or director, to acquire shares under a share option arrangement that does not fall within a Revenue approved (tax advantaged) share scheme under the relevant tax legislation. Unlike approved share schemes there are generally no specific legislative restrictions imposed on unapproved share option awards.

For most options, no tax is due at the date of grant of the share option if the market value of the share at this date is the current market value of the shares.

Under section 128 of the Taxes Consolidation Act 1997 (TCA), when the share option is exercised and the shares are acquired, the difference between the price of the share payable and the current value of the share is subject to Income Tax, Universal Social Charge (USC) and Pay Related Social Insurance (PRSI). This is the moment the employee acquires the shares. In general, no employer PRSI is payable on share-based remuneration. Therefore, the gain is not unrealised for Income Tax purposes as the exercise of the share option creates a taxable employment gain based on the difference between the shares market value and the exercise price.

On a subsequent disposal of the shares, the employee may be liable to CGT on the difference between the sales proceeds and the market value of the shares on the date they were acquired.

It should be noted that significant changes were introduced in Finance Act 2023 that resulted in moving the responsibility for the payment of tax in respect of options exercised on or after 1 January 2024, from the individual to his or her employer. From 1 January 2024, the taxation of gains on the exercise of unapproved share options moved from a self-assessment basis (where the person was required to file a return and pay the liability) and became incorporated into the PAYE system. The gain realised is a notional payment by the employer, who is responsible for remitting the Income Tax, USC and PRSI via the PAYE system. If the employee is in receipt of emoluments on the date the notional payment is made or if the emoluments payable on their next pay date, if applicable, are insufficient to cover the tax liability, employers may-

• withhold shares from the employee to fund the acquisition of the shares and the tax due on the event,

• request the amount of tax payable from the employee, or

• pay for the tax liability on the gain realised.

In any case, employers are obliged to remit to Revenue the Income Tax, USC and PRSI due on the gain arising on exercise even if they are unable to withhold the full amount due from the individual’s emoluments.

Share Option Scheme with no Income Tax for Private Companies

Section 128F TCA 1997 provides a targeted regime, for private companies, that only taxes the employee at the point of sale of the shares. This is the Key Employee Engagement Programme (KEEP).

Under KEEP, the gain on exercise of a qualifying share option is exempt from Income Tax, USC and PRSI, with CGT generally arising when the share is subsequently disposed of. The CGT base cost is the price paid for the shares on exercise.

KEEP is confined to Small/Medium Enterprise (SME) companies and carries a number of conditions, including that the option must be granted at not less than market value, held for at least one year before exercise, and exercised within ten years of grant. It is available to full time employees or directors of qualifying SME companies, and there are monetary and company-size limits.

Further information on the tax treatment of unapproved options can be found in Revenue’s Tax and Duty Manual (TDM), Chapter 3 - Unapproved Share Options at the following link: www.revenue.ie/en/tax-professionals/tdm/share-schemes/chapter-03.pdf.

Further information on the Key Employee Engagement Programme (KEEP) can be found in Revenue’s Tax and Duty Manual, Chapter 9 – Key Employee Engagement Programme (KEEP) at the following link: www.revenue.ie/en/tax-professionals/tdm/share-schemes/Chapter-09.pdf

Taxation matters are reviewed on an annual basis as part of the budgetary process.

Finally, it is a longstanding practice of the Minister for Finance not to comment in advance of the Budget on any tax matters which might be the subject of Budget decisions.