Government mulling tax boost for share options in Budget, says Finance Minister Paschal Donohoe

Startup workers and directors could be in line for a further tax break on their share options in next year’s Budget.

he ministers for finance and enterprise confirmed yesterday that they are considering changes to how capital gains are treated in the Key Employee Engagement Programme (KEEP), a share option scheme for small and medium-sized firms.

In place since 2018, KEEP exempts workers and directors from paying income tax, USC or PRSI on their shares and defers capital gains tax until they are sold. It links share value to wages and hours worked and prohibits certain industry sectors from participating.

Finance Minister Paschal Donohoe, said the Government has begun “assessing where we are with the KEEP scheme” and that making changes to it “is something that we would consider for the forthcoming budget”.

The Government believes the scheme is the next step in making Ireland more attractive to startups, after extending tax reliefs for equity investors in this year’s Budget and launching a €90m seed fund for startups this week.

“The next part of the plan is where we are with share options which, particularly for smaller Irish companies, is an issue that is more important than it is for larger companies,” Mr Donohoe said.

“Among the things we’re considering at the moment is whether we can do something around share options, around capital gains, to encourage small businesses to incentivise their employees,” said Tánaiste Leo Varadkar, “using that mechanism, when they aren’t able to match the kind of large salaries that large companies are in a position to offer”.

The Irish ProShare Association (IPSA) lobby group has criticised KEEP as too complex and said it would need to be “significantly reformed” if it is to help smaller firms attract workers.

“It has onerous qualifying restrictions and limitations, there are difficulties navigating the scheme, and the costs associated with establishing KEEP are excessive for startups,” said IPSA Chair Eleanor Cunningham.

“Many companies have looked at KEEP, but very few have implemented it.”

Ms Cunningham welcomed the Government’s commitment to share incentives but said KEEP should be made more “easily understood and implemented”.

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