New Employee Share Scheme ‘KEEP’ aims to reduce tax and retain key staff

Beneficial ownership explaination

By Helen Dyulgerov ACA AITI
Head Accountant
Accounting & Bookkeeping Bureau
17th Oct 2017

As part of Budget 2018 Minister Paschal O’Donoghue announced the introduction of a Key Employee Engagement Programme or “KEEP” for short. The purpose of this programme is to encourage SME companies to incentivise employees through the award of share options, without creating a burdensome tax liability for the employee.

The Minister’s announcement was light on detail, however, it is expected that the programme will apply to unquoted SMEs and will result in the gain arising on the exercise of the share options being liable to Capital Gains Tax (CGT) rather than Income Tax, USC and PRSI. The benefit of this is that the current CGT rate is 33% as opposed to the marginal rate of personal taxes of 48.75%. The scheme is expected to apply to options granted between 1st January 2018 and 31st December 2023.

It is anticipated that the conditions for KEEP will emulate the conditions which apply to the Enterprise Management Incentive (EMI) Scheme which operates in the UK. This caps the value awarded to individuals at £25,000 with a maximum award of £3,000,000 allowed per employer. Under the EMI Scheme, the employer must be a UK resident trading company with assets of less than £30,000,000 and less than 250 employees. This incentive is available for share options granted between 1 January 2018 and 31 December 2023.

Further detail on the programme is expected to be announced in the Finance Bill. The programme is also subject to EU State Aid approval.

Updates to the Key Employee Engagement Programme ‘KEEP’