Employee Share Plans: Ireland

A Q&A guide to employee share plans law in Ireland.

The Q&A gives a high level overview of the key practical issues including, whether share plans are common and can be offered by foreign parent companies, the structure and rules relating to the different types of share option plan, share purchase plan and phantom share plan, taxation, corporate governance guidelines, consultation duties, exchange control regulations, taxation of internationally mobile employees, prospectus requirements, and necessary regulatory consents and filings.

To compare answers across multiple jurisdictions, visit the Employee Share Plans Country Q&A tool.

The Q&A is part of the multi-jurisdictional guide to employee share plans law. For a full list of jurisdictional Q&As visit www.practicallaw.com/employeeshareplans-mjg.

Nicola McGrath, Eugene F Collins
Contents

Employee Participation

1. Is it common for employees to be offered participation in an employee share plan?

Larger companies and listed companies and their subsidiaries commonly offer a range of plans including:

  • All-employee approved profit sharing or save-as-you-earn (SAYE) plans.

  • Unapproved share incentive plans for senior management.

Employee share participation is also common in smaller companies.

Employee share trusts with union involvement have been important for semi-state companies converting to private ownership.

 
2. Is it lawful to offer participation in an employee share plan where the shares to be acquired are shares in a foreign parent company?

It is lawful to offer plans in a foreign parent company. However, a foreign company that is not listed on an EU regulated market must comply with prospectus requirements, if applicable (see Question 24).

 

Share option plans

3. What types of share option plans are operated in your jurisdiction?

The share option plans available are:

  • Revenue Commissioners (Revenue) approved SAYE option plans (SAYE plans).

  • Unapproved share option plans.

 
4. In relation to the share option plan:
  • What are the plan's main characteristics?

  • Which types of company can offer the plan?

  • Is this type of plan popular? If so, among which types of company is this plan particularly popular?

SAYE plan

Main characteristics. Certified SAYE plans have two aspects:

  • Contractual savings plan.

  • Savings-related share option plan.

Under an SAYE plan employees agree to save a fixed amount of between EUR12 and EUR500 a month with a qualifying savings institution for a period of either three or five years (with the option to leave the savings for a further two years to accumulate further interest).

The savings amount is deducted from an employee's net pay each week or month, as applicable, and transferred at the end of each month to the employee's savings account.

Interest and/or bonus paid on savings is exempt from:

  • Income tax.

  • Universal social charge (USC).

  • Pay related social insurance (PRSI).

  • Deposit interest retention tax (DIRT).

Types of company. SAYE plans are open to all companies and are particularly popular with larger companies or subsidiaries of multinational companies (see Question 5, SAYE Plan, Tax/social security for share requirements).

Popularity. As of January 2011, Revenue had approved 139 SAYE plans.

Unapproved share option plan

Main characteristics. An unapproved share option plan provides for the grant of share options to selected employees by an employer. Options are exercised subject to satisfaction of conditions (if any) specified in the grant.

Types of company. Any type of company can offer unapproved share option plans.

Popularity. As share option plans are flexible they are popular but they do not give any tax advantages. It is common for companies who offer all-employee approved share participation plans to also offer an unapproved discretionary option plan to senior employees.

Grant

5. In relation to the grant of share options under the plan:
  • Can options be granted on a discretionary basis or must they be offered to all employees on the same terms?

  • Can options be granted to non-employee directors and consultants as well as employees?

  • Is there a maximum value of shares over which options can be granted, either on a per-company or per-employee basis?

  • Must the options have an exercise price equivalent to market value at the date of grant?

  • What are the tax and social security implications of the grant of the option?

SAYE plan

Discretionary/all-employee. The options are offered on similar terms to all employees and full time directors who pay income tax under Schedule E and who satisfy an optional qualifying service period not exceeding three years.

SAYE plans are not available to employees who have, or within the preceding 12 months had, a material interest (15%) in the company issuing the shares or a company that controls that company.

Where the company is part of a group, the plan must not confer benefits wholly or mainly on directors or higher paid employees in the group.

Non-employee participation. SAYE plans are not open to non-employee participation.

Maximum value of shares. The maximum price paid for option shares must not exceed the amount of the savings plan and interest or bonus earned.

Market value. The minimum option price is 75% of the market value of the option shares, but plans can provide price variations for future share capital variations.

Tax/social security. SAYE plans must be approved by Revenue under Schedule 12A of the Taxes Consolidation Act 1997 (TCA).

The shares issued must be either shares of a class listed on a recognised stock exchange or in a company which is:

  • Not under the control of another company.

  • Under the control of a company (other than a close company) whose shares are listed on a recognised stock exchange.

Shares must be:

  • Fully paid up.

  • Not redeemable.

  • Not subject to any restriction other than restrictions which attach to all shares of the same class.

Where there is more than one class of shares the majority of the issued shares of the same class as the option shares must not be held by:

  • Persons who are to acquire rights under the SAYE plan.

  • Trustees for such persons.

  • Companies that have control of or are associated with the company.

Income tax and PRSI is not charged on the grant of an option. The relevant legislation provides for USC to be charged on the difference between the option price and the share price where a grant is made at below market value (TCA as amended by the Finance Act 2011), but Revenue have indicated that USC will not be charged on the grant in practice.

Unapproved share option plan

Discretionary/all-employee. Unapproved share option plans can be offered on a discretionary basis but must not breach employment equality legislation.

Non-employee participation. Plans can provide for options to be granted to, for example, non-executive directors and consultants.

Maximum value of shares. There is no maximum limit on the value of shares in unapproved share option plans.

Market value. There is no market value restriction.

Tax/social security. Generally, there are no tax or social security charges. However, on the grant of an unapproved option that is exercisable after seven years from the grant date (long option) income tax, USC and employee PRSI is charged on the market value of the option at the grant date (that is, the difference between the option price and the market value of the shares under option). Employers usually provide for the lapse of options on or before the seventh anniversary of grant.

Vesting

6. In relation to the vesting of share options:
  • Can the company specify that the options are only exercisable if certain performance or time-based vesting conditions are met?

  • Are any tax/social security contributions payable when these performance or time-based vesting conditions are met? Who is obliged to account for the liability and by when? How (if appropriate) is the liability recovered from employees?

SAYE plan

Exercisable only on conditions being met. Options cannot be exercised before the date on which repayments are due (bonus date). Exceptions include:

  • Death.

  • Cessation of employment through illness, disability or retirement.

  • Takeovers.

Other conditions on vesting are not permitted.

Tax/social security. No tax or social security is charged when an option vests.

Unapproved share option plan

Exercisable only on conditions being met. When granting the option the plan can:

  • Provide for vesting conditions, including performance-based conditions.

  • Give the board or committee issuing options the power to impose vesting conditions.

Tax/social security. No tax or social security is charged when an option vests.

Exercise and sale

7. Do any tax or social security implications arise when the:
  • Option is exercised?

  • Shares acquired on exercise are sold?

  • Who is obliged to account for the liability and by when?

  • How (if appropriate) is the liability recovered from employees?

SAYE plan

Tax/social security on exercise. Income tax is not charged on the benefit (the difference between the market value and exercise price) made when an option is exercised unless it is exercised within three years of issue. In such circumstances only, the employee is treated as if the option was an unapproved option (see below Unapproved share option plan).

Employee PRSI and USC is charged on the exercise of an SAYE option. Employee PRSI is not charged however, if the employer and employee entered into a written agreement before 1 January 2011 for shares awarded or issued before 1 January 2012 (grandfathering provision). This is not yet approved by legislation (see Question 27).

Tax/social security on sale. Capital gains tax (CGT) of 25% is paid on the difference between the sale price and the cost of shares, and is paid under the self-assessment system.

Employees are entitled to a small gains exemption on gains of up to EUR1,270 per year (as at 1 August 2011, US$1 was about EUR0.7).

CGT is due on 15 December for shares sold on or before 30 November in that year and if sold during December by 31 January of the following year.

Accounting for tax/social security.

If the employee is:

  • Employed by the company when the option is exercised, USC and employee PRSI charged on exercise is paid through the PAYE system.

  • Not employed by the company when the option is exercised, USC is collected through the self-assessment system and employee PRSI is collected by the PRSI Special Collections Unit.

How liability is recovered from employee. To recover any liability from an employee an employer must:

  • Deduct USC and PRSI from the employee's pay.

  • Account for and pay in full with the next monthly P30 return.

  • Not reduce an employee's pay below EUR38 per week, as this can adversely affect PRSI contributions records.

  • Collect any amounts not deducted or any shortfall over the remaining pay periods.

  • Recover the full amount by 31 March of the following tax year. Otherwise, the employee must pay income tax, USC and employer and employee PRSI on the unrecovered USC and PRSI.

Unapproved share option plan

Tax/social security on exercise. Income tax is charged on the gain made on exercise and is paid through the self-assessment system.

When an option is exercised an employee must:

  • Pay the relevant tax within 30 days. Relevant tax is calculated at the higher rate of income tax for the year of assessment in which the right is exercised.

  • Return and pay the relevant tax through an RTSO 1 form.

  • File a standard tax return for the year of assessment. Relevant tax is deducted from the income tax payable.

  • Pay USC on share option gains with the RTSO 1 form.

  • If the gain is more than EUR100,000 the additional self-employed USC 3% levy is not charged.

Employer PRSI is not charged on share-based remuneration.

Employee PRSI is charged on the gain realised on exercise of an option except for options which were subject to written agreements made before 1 January 2011 (see Question 27).

If the employee is:

  • Employed by the company when the option is exercised, PRSI is collected through the PAYE system.

  • Not employed by the company when the option is exercised, PRSI is collected through the special collection system.

Tax/social security on sale. CGT is charged on the difference between the sale price of the shares and the acquisition cost, which includes the:

  • Cost of the option, if any.

  • Exercise price paid for the shares.

  • Amount charged to income tax on the exercise of the option.

Accounting for tax/social security. Income tax, USC and CGT is paid through the self-assessment system. PRSI is currently collected through payroll, although this is expected to change in 2012.

How liability is recovered from employee: See above SAYE plans for recovery of PRSI.

 

Share acquisition or purchase plans

8. What types of share acquisition or purchase plan are operated in your jurisdiction?

The following types of plans are available:

  • Employee share ownership trusts (ESOTs).

  • Approved profit sharing plans (APSSs).

  • Restricted share plans.

  • Various forms of unapproved share award/restricted share unit (RSU) plans.

 
9. In relation to the share acquisition or purchase plan:
  • What are the plan's main characteristics?

  • Which types of company can offer the plan?

  • Is this type of plan popular?

ESOT

Main characteristics. ESOTs are Revenue-approved discretionary trusts holding shares for future distribution and are:

  • Set up by the employer for the benefit of employees and full time directors.

  • Mainly used with APSSs.

ESOTs allow a longer holding period for shares than standard APSSs and trustees can get finance from sources other than the employer to acquire shares.

Types of company. Any company can offer ESOTs, subject to Revenue approval.

Popularity. As of 20 January 2011, Revenue had approved 13 ESOTs.

APSS

Main characteristics. APSSs are Revenue-approved trusts where the:

  • Trustee or trustees are independent of the employer.

  • Employer contributes money to acquire shares for participating employees and to meet operating costs.

  • Shares are held on trust and not dealt with, for a minimum period (retention period) of:

    • two years; or

    • the date on which the employee ceases to be employed due to death, ill heath, or retirement on pensionable age, if earlier.

  • Shares must be left in trust for three years to avail of the maximum income tax relief (release date).

Types of company. Any company can adopt APSSs if the shares satisfy the same conditions as those applying to shares subject to SAYE plans (see Question 5).

APSSs are more common in larger companies due to administrative requirements and because the shares need an available market.

Popularity. As of 20 January 2011, Revenue had approved 530 APSSs.

Restricted share plan

Main characteristics. In restricted share plans the shares must be held in a trust set up by the employer for the benefit of employees for a minimum of one year to over five years (restricted period).

The employee must:

  • Enter into a written contract and agree that the shares will be held on trust for more than one year.

  • Not dispose of the shares during the restricted period except in limited circumstances such as a takeover offer or cessation of employment.

The income tax charged for the share value is reduced by a percentage between 10% to 60%, depending on the length of the restricted period.

Types of company. Any company can offer restricted share plans.

Popularity. Restricted share plans are more popular in recent years, in particular for senior employees.

Unapproved share award and RSU plan

Main characteristics. These plans generally involve a promise by an employer to issue or transfer shares to an employee at a future time and/or subject to satisfying certain conditions at no or nominal cost.

Types of company. Any company can offer unapproved share award plans or RSUs.

Popularity. These plans are popular with subsidiaries of multinational companies.

Acquisition or purchase

10. In relation to the initial acquisition or purchase of shares:
  • Can entitlement to acquire shares be awarded on a discretionary basis or must it be offered to all employees on the same terms?

  • Can shares be offered under the plan to non-employee directors and consultants as well as employees?

  • Is there a maximum value of shares that can be awarded under the plan, either on a per-company or per-employee basis?

  • Must employees pay for the shares and, if so, are there any rules governing the price?

  • What are the tax/social security implications of the acquisition or purchase of shares?

ESOT

Discretionary/all-employee. ESOTs must include all employees and full time directors (who work 20 hours a week or more) who are charged income tax under Schedule E and who satisfy an optional qualifying service period not exceeding three years.

ESOTs can include employees not charged under Schedule E and former employees and directors within the preceding 18 months (or 15 years of the ESOTs establishment where a loan is in place to finance the purchase and 50% or more of shares are pledged as security).

Non-employee participation. It is not permitted to offer ESOTs to non-employees except for former employees.

Maximum value of shares. An ESOT is typically used in conjunction with APSSs (see below APSS).

Payment for shares and price. Shares are purchased by funds provided to, or borrowed by, the ESOT. There is no price condition.

Tax/social security. ESOTs must be approved by Revenue and the company must not be under the control of any other company.

Three trust deed structures can be used:

  • Individual trustees with a minimum of three resident in Ireland, one being a professional trustee and the majority employee representatives.

  • Individual trustees with a minimum of three resident in Ireland, an equal number of employee and company representatives and an outside independent trustee.

  • A trust company resident in Ireland with a board of directors consisting of members as for individual trustees (see above).

The trustees must use sums received for qualifying purposes only. These include:

  • Share acquisitions.

  • Repayments on borrowings.

  • Payment of interest on borrowings.

  • Payments to beneficiaries or deceased beneficiaries.

  • Expenses.

Set up costs and payments made to trustees used for qualifying purposes within nine months of the accounting date are deducted from corporation tax.

ESOTs are exempt from:

  • Income tax on dividends for sums used for qualifying purposes.

  • CGT on transfer of shares to trustees of an APSS and on sale of shares where the proceeds are used to pay:

    • interest on, or repay, borrowings; or

    • a sum to personal representatives of a deceased beneficiary.

APSS

Discretionary/all-employee. APSSs must include all employees and full-time directors who are charged income tax under Schedule E and who satisfy an optional qualifying service period not exceeding three years.

APSSs cannot be offered to any person who has, or had within the preceding 12 months, a material interest (broadly, for this purpose a 15% interest) in the company issuing the shares or a company that controls that company.

The plan can be offered to:

  • Employees not charged under Schedule E.

  • Former employees and directors within the preceding 18 months.

  • A person who is or was within the preceding 30 days a beneficiary of a related ESOT that transfers shares to an APSS.

Non-employee participation. It is not permitted to include non-employees other than former employees (see above).

Maximum value of shares. The maximum total market value of shares used in the plan in any one tax year is EUR12,700. If shares were held in an ESOT and pledged as security for certain periods the maximum is EUR38,100.

Payment for shares and price. The company typically funds the purchase of shares by payment of a non-discretionary bonus to the trustees. Discretionary bonuses may also be used to fund purchases where available to all eligible employees.

Employees can opt to match the company contribution by foregoing up to a maximum of 7.5% basic salary, or an amount equal to that provided by the company, if less.

Tax/social security. APSSs must have Revenue approval under Schedule 11 of the TCA and the shares must:

  • Be held for a period of three years for full relief.

  • Satisfy certain conditions (see Question 5).

No income tax is paid on acquisition, USC and employee PRSI is paid and collected through payroll.

Restricted share plan

Discretionary/all-employee. Restricted share plans can be offered on a discretionary basis.

Non-employee participation. Relief under restricted share plans is only available to employees.

Maximum value of shares. There is no maximum share value applicable.

Payment for shares and price. Generally, the employer awards the shares to the employee free or for a nominal amount. Tax is then charged on a deemed value (taxable amount) which is calculated as the market value of the shares reduced by a percentage of between 10% and 60% depending on the agreed restricted period.

Tax/social security. The shares must be held in a trust set up by the employer for the benefit of employees and directors, or held under an arrangement permitted by Revenue.

The employee must:

  • Agree in writing that shares are held on trust for a fixed period of more than one year (restricted period).

  • Not dispose of them except, for example, in a takeover or re-organisation.

Income tax, USC and employee PRSI are charged on the reduced taxable amount and collected through payroll.

An employer must:

  • Deduct income tax, USC and PRSI from the employee's pay.

  • Account for and pay in full these amounts with the next monthly P30 return.

  • Not reduce an employee's pay below EUR38 per week as this can adversely affect PRSI contributions records.

  • Collect any amounts not deducted or any shortfall over the remaining pay periods. The full amount must be recovered by 31 March of the following tax year, as otherwise, the employee will have to pay income tax, USC and employer and employee PRSI on the unrecovered USC and PRSI.

Unapproved share award and RSU plan

Discretionary/all-employee. Unapproved share awards or RSUs are offered on a discretionary basis.

Non-employee participation. Non-employees can be offered unapproved share awards or RSUs.

Maximum value of shares. There is no maximum limit for the value of shares.

Payment for shares and price. Shares are offered for free or at a cost.

Tax/social security. The market value of the shares issued to employees less any amount paid by the employee is charged income tax, USC and employee PRSI, which are collected through payroll. See Question 9, Restricted share plan.

Vesting

11. In relation to the vesting of share acquisition or purchase awards:
  • Can the company award the shares subject to restrictions that are only removed when performance or time-based vesting conditions are met?

  • Are any tax/social security contributions payable when these performance or time-based vesting conditions are met? Who is obliged to account for the liability and by when? How (if appropriate) is the liability recovered from employees?

ESOT

Shares are generally transferred to trustees of an APSS and given to employees through the APSS.

APSS

Restrictions removed only on conditions being met. When shares are given to employees the beneficial interest vests immediately but the shares must be retained in the trust for at least the retention period (see Question 9).

The employee can ask that shares be transferred to him after the expiry of the retention period. Before the transfer the employee must pay the trustees a sum equal to the income tax at the standard rate (20%) on the appropriate percentage of the locked-in-value of the shares (generally the initial market value subject to potential adjustments in the case of capital receipts or disposals). The appropriate percentage is generally 100%, reduced to 50% in the case of death, cessation for illness or retirement.

At the end of a three-year period the employee is entitled to take both legal and beneficial title to the shares and no tax or social security charges arise.

No other discretionary conditions are permitted.

Tax/social security. See Question 10.

Restricted share plan

Restrictions removed only on conditions being met. The employee is the beneficial owner of the shares from the beginning and agrees to:

  • The shares being held in trust.

  • Not dispose of the shares for a specified period (Question 10).

Tax/social security. Tax and social security charges arise on issue of shares (see Question 10) and there is a tax-clawback if shares are disposed of before the end of the restricted period.

Unapproved share award and RSU plan

Restrictions removed only on conditions being met. A company can impose conditions at its discretion.

Tax/social security. A share award or RSU is a taxable employment payment. Tax arises when shares vest or when shares or cash pass to the employee, whichever is earlier. There can be a further period between vesting and delivery or settlement of shares. There is an additional 60 days tax collection period after vesting to allow for settlement.

The employer pays income tax, USC and PRSI with the P30 return for the month following the settlement date or, if earlier, the 60th day after vesting. All payments are made by the last P30 filing date for the relevant tax year (by 14 or 23 January if paid through the Revenue Online Service (ROS)). If an employee ceases employment between vesting and settlement income tax, employee PRSI and USC is paid at the time of cessation.

Sale

12. What are the tax and social security implications when the shares are sold? Who is obliged to account for the liability and by when? How (if appropriate) is the liability recovered from employees?

ESOT

Shares are generally distributed to employees through an APSS.

APSS

Shares cannot be sold by or on behalf of employees before the end of the retention period. If shares are disposed of after the retention period but before the end of the three-year release period, income tax is calculated on the appropriate percentage of the locked-in-value of the shares (see Question 11).

Where shares are sold after the end of the three-year period, the employee is liable to CGT on the increase in value over the initial market value.

To reduce unit selling costs, such as stockbroker charges, the trustees of an APSS usually organise a sale on behalf of all employees who want to sell at the end of the three-year period.

Restricted share plan

A clawback arises if shares are sold before the end of the relevant restricted period. After this period, on a sale of the shares, the employee is liable to CGT on the difference between the sale price and the taxable value of the shares.

Unapproved share award and RSU plan

The employee can be liable for CGT on the sale of shares after the relevant restricted period, that is, on the difference between the sale price and the taxable value of the shares.

See Question 5, SAYE plan for timing of CGT payments.

 

Phantom or cash-settled share plans

13. What types of phantom or cash-settled share plan are operated in your jurisdiction?

Phantom plans are not common as they give no tax benefit.

 
14. In relation to the phantom or cash-settled share plan:
  • What are the plan's main characteristics?

  • Which types of company can offer the plan?

  • Is this type of plan popular? If so, among which types of company is this plan particularly popular?

Phantom share option plan

Main characteristics. Employees receive notional options over phantom shares, which are linked to the company's actual share price. On exercise, employees receive cash amounts related to the growth in the underlying share price.

Types of company. Any company can offer phantom share option plans.

Popularity. Phantom share options plans are not very common.

Grant

15. In relation to the grant of phantom or cash-settled awards:
  • Can the awards be granted on a discretionary basis or must they be offered to all employees on the same terms?

  • Can participation in the plan be offered to non-employee directors and consultants as well as employees?

  • Is there a maximum award value that can be granted under the plan, either on a per-company or per-employee basis?

  • What are the tax/social security implications when the award is made?

Phantom share option plan

Discretionary/all-employee. Phantom share option plans are offered on a discretionary basis.

Non-employee participation. It is permitted to offer phantom option plans to non-employees but it is not common.

Maximum value of awards. There is no maximum value restriction on awards.

Tax/social security. No tax or social security charges arise on the grant of phantom share options.

Phantom option plans can be structured to vest only when performance and/or time based conditions are met.

Vesting

16. In relation to the vesting of phantom or cash-settled awards:
  • Can the awards be made to vest only where performance or time-based vesting conditions are met?

  • Are any tax/social security contributions payable when these performance or time-based vesting conditions are met? Who is obliged to account for the liability and by when? How (if appropriate) is the liability recovered from employees?

Phantom share option plan

Award vested only on conditions being met. The employer can impose time and/or performance based vesting criteria.

Tax/social security. Phantom option plans are usually structured so that vesting and payment occur simultaneously or so that a further exercise condition is required to realise the phantom option's value. Tax and social security charges arise when the award is paid (see Question 17).

Payment

17. What are the tax and social security implications when the phantom or cash-settled award is paid out? Who is obliged to account for the liability and by when? How (if appropriate) is the liability recovered from employees?

Phantom share option plan

The employer deducts and accounts for income tax, USC, employer and employee PRSI under the PAYE collection system.

 

Institutional, shareholder, market or other guidelines

18. Are there any institutional, shareholder, market or other guidelines that apply to any of the above plans, and which types of company are subject to them? What are their principal terms?

Institutional investor guidelines

The Irish Association of Investment Managers (IAIM) represents institutional shareholders and issued guidelines to listed companies. IAIM guidelines:

  • Require that no more than 10% of the issued ordinary share capital (adjusted for scrip, bonus and rights issues) is used for share plans over a period of ten years.

  • Set limits on awards to an individual director or employee.

  • Specify that share plans and other long-term incentive plans should be:

    • approved by shareholders;

    • financially underpinned;

    • transparent;

    • comparable.

There are basic tier and second tier plans and the guidelines provide for flow rate controls to ensure that the opportunity for participation is maintained throughout the rolling period. Following IAIM approval a further amount of up to 5% can be used for broadly based employee share plans.

Other shareholder guidelines

Although private companies incorporated in Ireland are not subject to guidelines, the company's articles of association can contain pre-emption rights and share restrictions.

Market rules or guidelines

Companies with shares listed on the official list of the Irish Stock Exchange (ISE) must comply with the Irish Stock Exchange Listing Rules which:

  • Require shareholder approval for the adoption of most share plans other than all-employee plans.

  • Require shareholder approval to the grant of share options at below market value, except, for example, in the case of all-employee plans or replacement options on take-overs.

  • Prohibit insiders from certain dealings in shares and securities.

The Market Abuse (Directive 2003/6/EC) Regulations 2005 implementing Directive 2003/6/EC on insider dealing and market manipulation (market abuse) (Market Abuse Directive) also apply.

Companies with shares listed on the Enterprise Securities Market (ESM) of the ISE must comply with the insider dealing rules of the Companies Acts. ESM companies must notify the ISE of certain information including certain share dealings by directors.

 

Employment law

19. Is consultation or agreement with, or notification to, employee representative bodies required before an employee share plan can be launched? If so, what information must be provided and how long does the process take?

Employers with agreements for consultation in place under the Employees (Provision of Information and Consultation Act 2006) must comply with those agreements.

Where collective bargaining agreements (CBAs) are in place, consultation with the relevant union is often required before any change is made to remuneration agreements. This is especially relevant if a share incentive plan is introduced as part of a package of measures which may include a change in working practices or changes to other forms of remuneration.

Employers must produce an employee booklet for an SAYE option plan, APSS or ESOT before the plan can get Revenue approval.

 
20. Do participants in share plans have rights to compensation for loss of options or awards on termination of employment?

Share plans typically do not include rights for compensation, but in claims for unfair dismissal or wrongful dismissal an employee may seek to claim for loss of benefits under a share incentive plan.

 

Exchange control

21. How do exchange control regulations affect employees sending money from your jurisdiction to another to purchase shares under an employee share plan? If consents or filings are needed, how much will they cost and how long will they take?

No general currency restrictions apply in Ireland. However, the Minister for Finance can restrict financial transfers between Ireland and other countries under the Financial Transfers Act 1992 and there are currently restrictions on financial transfers involving Iran, Iraq, Liberia and Sudan, among other countries.

 
22. Do exchange control regulations permit or require employees to repatriate proceeds derived from selling shares in another jurisdiction? Are there any conditions for repatriating funds (such as monetary limits, timing, filings or consents)?
 

Internationally mobile employees

23. What is the tax position when:
  • An employee who is resident in your jurisdiction at the time of grant of a share option or award leaves your jurisdiction before any taxable event (such as the amendment, vesting, exercise or release of the option or award or the grant of a replacement) affecting the option or award takes place?

  • An employee is sent to your jurisdiction holding share options or awards granted to him before he is resident in your jurisdiction and a taxable event occurs after he arrives in your jurisdiction?

Resident employee

If an employee receives an option grant in connection with his employment when he is resident there is a charge to income tax on exercise even if the employee is no longer resident when the share option is exercised, assigned or released.

Double taxation relief can apply. If the double taxation agreement (DTA) confines the income tax charge to the period of employment in Ireland, the gain is apportioned based on the period of employment in Ireland as a portion of the entire vesting period. Only that portion referring to the Irish employment is taxed in Ireland.

Non-resident employee

For share options granted after 5 April 2007, income tax is charged if the share option is exercised by an employee resident in Ireland even if the employee was non-resident when the option was granted. This is restricted on a time apportionment basis to the portion of the gain relating to the period during which the duties of office or employment were performed in Ireland.

Income tax is not charged if the option was granted:

  • When the individual was non-resident and not subject to Irish tax.

  • None of the duties of the office or employment referable to the grant are exercised in Ireland.

 

Prospectus requirements

24. For the offer of and participation in an employee share plan:
  • What are the prospectus requirements?

  • Are there any exemptions from prospectus requirements?

  • If so, what are the conditions for the exemption(s) to apply?

  • Are any prospectus/securities laws consents or filings required?

Prospectus needed for employee share plan offer. The Prospectus (Directive 2003/71/EC) Regulations 2005, implementing Directive 2003/71/EC on the prospectus to be published when securities are offered to the public or admitted to trading (Prospectus Directive), state that a prospectus must be published for offers of securities to the public, with some exemptions. The prospectus must be approved by either the Central Bank of Ireland or a competent authority in another EU member state.

Exemption(s) for employee share plan offers. There are a number of exemptions to the requirement to issue a prospectus including:

  • An offer with total consideration less than EUR2.5 million:

    • when added to the consideration for all previous offers of securities of the same type in the issuer; and

    • made by the same offeror or issuer within a period of 12 months immediately before the offer (see below).

  • An offer of securities to less than 100 persons.

  • An offer of securities offered to existing or former directors or employees by their employer or by an affiliated undertaking that has securities already trading on a regulated market. A document containing certain information on the securities must be available. This exemption is confined to employers that already have securities listed on a regulated market, that is, EU and European Economic Area (EEA) countries.

Where the offer is worth less than EUR2.5 million (but does not fall under certain other exemptions under the Prospectus Directive) then:

  • The offer can be subject to local offers requirements of the Investment Funds, Companies and Miscellaneous Provisions Act 2005.

  • The relevant offering document must:

    • state that it was not prepared in accordance with the Prospectus Directive;

    • include other prescribed disclaimers.

Conditions for exemptions. Directive 2010/73/EU amending the Prospectus Directive and 2004/109/EC on the harmonisation of transparency requirements in relation to information about issuers whose securities are admitted to trading on a regulated market, introduced amendments which extend the scope of the employee share plan exemption. Each member state must implement the changes by 1 July 2012.

The amendments provide that any employer offering securities under an employee share plan need not issue a prospectus if either the employer:

  • Has its head office or registered office in the EU.

  • Is established outside the EU and its securities are trading either on a:

    • regulated market; or

    • third country market, where the European Commission is satisfied that the legal and supervisory framework of the third country market is equivalent to the EU's.

Other amendments include:

  • Extending the exemptions to increase the offer threshold from 100 to 150 persons before a prospectus is required.

  • Increasing the threshold for local offers from EUR2.5 million to EUR5 million.

The following are not considered offers for the purposes of the Prospectus Directive:

  • Non-transferrable options, as the Prospectus Directive is only concerned with transferrable securities.

  • Plans that offer free shares to employees, if no choice is involved. Offers for zero consideration, where the recipient has discretion whether or not to accept the offer, can fall within excluded offers.

The employer must issue a prospectus complying with the Prospectus Directive if the offer qualifies as a public offer and does not fall within the exemptions set out above. A short form disclosure can be included for offers to employees in cases where a prospectus is required.

A private company cannot make any invitation or offer to the public to subscribe for any shares, debentures or other securities of the company. An offer or allotment of shares can be made to:

  • Qualified investors.

  • 99 or fewer persons.

  • Both qualified investors and 99 or fewer other persons.

Consents or filings. Qualified investors must be included on a register maintained by the Central Bank under the Prospectus Regulations.

 

Other regulatory consents or filings

25. Are there any other regulatory consents and filing requirements and/or other administrative obligations for an offer of and participation in an employee share plan?

SAYE share option plans, ESOTs and APSSs must be approved in advance by Revenue. No approval is required for other employee share plans.

An employer must return details of shares, share options and other rights and securities (including convertible securities, restricted securities and forfeitable shares) given to directors and employees in each tax year, that is, between 1 January and 31 December, by 31 March of the following year.

The trustees of an APSS must make a return including payments received, shares acquired and shares appropriated, and other relevant transactions (for example, capital receipts, rights issues, share disposals, company reorganisations) during a tax year, by 31 March in the year following.

 

Formalities

26. What are the applicable legal formalities?

Translation requirements. An employee booklet about the share plan must be produced in English before Revenue will approve the plan.

E-mail or online agreements. Electronic agreements are permitted but the plan's rules must specify that all eligible employees have, or are provided with, access to such communication.

Witnesses/notarisation requirements. No witnesses or notarisation is required.

Employee consent. Under the Payment of Wages Act 1991 employers can make legal deductions, for example, PAYE. However, the employee must agree to deductions towards SAYE savings accounts. In practice, the employee consents to any necessary deductions when applying or agreeing to participate in the plan.

The Data Protection Acts 1998 to 2003 apply to employee data and the rules regarding transfer of data apply.

 

Developments and reform

27. Please briefly summarise:
  • The main trends and developments (including market practice) relating to employee share plans over the last year.

  • Any official proposals for reform of any laws which will affect the operation of employee share plans.

Trends and developments

The main issue in 2011 was the implementation of changes made in the 2011 Budget to the taxation of share-based remuneration. Changes to USC and PRSI were introduced for Revenue approved plans and share awards were brought within the PAYE system. The most controversial changes related to the introduction of PRSI (which prior to 1 January 2011 was not charged in respect of share based remuneration). Initially, both employer and employee PRSI was chargeable on share based remuneration with effect from 1 January, 2011. However, following various Ministerial announcements made during 2011, the current position is that no employer PRSI is chargeable on share based remuneration and no employee PRSI is chargeable where the share based remuneration was the subject of a written agreement before 1 January 2011 and the shares awarded or option exercised before 1 January 2012.

Given that low market values of share awards can be justified in the current climate, restricted type share plans are becoming increasingly popular in private companies for key executives. In these plans the shares are acquired and tax paid immediately but shares are subject to restrictions which allow for a deduction when calculating the taxable amount.

Reform proposals

Changes to the PRSI regime, as outlined above, await legislative implementation.

In addition, PRSI on the exercise of unapproved share options is currently collected through payroll for employees employed by the company on the exercise date although income tax and USC is collected through self-assessment. It is expected that provision will be made to enable collection of such PRSI through the same self assessment collection mechanism (RTSO 1 form) that applies to income tax and USC.

 

Contributor details

Nicola McGrath

Eugene F Collins

T +353 1 202 6400
F +353 1 667 5200
E nmcgrath@efc.ie
W www.efc.ie

Qualified. Ireland, 1997

Areas of practice. Company; banking and commercial, including M&A; equity fundraising; joint ventures and employee share plans.

Recent transactions

  • Involved in established restricted share plans for private limited companies.

  • Involved in approved profit sharing plan for Irish subsidiary of multinational publicly quoted company.


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