Shares for employees

Approved Profit-Sharing Schemes and Employee Share Ownership Trusts

Note

Revenue approval is required to operate an (Approved Profit-Sharing Schemes APSS) and an (Employee Share Ownership Trust) ESOT.

Details of the requirements for approval are set out in in Chapter 10 - Approved Profit Sharing Schemes (APSS) and Chapter 11 - Employee Share Ownership Trusts (ESOT).

APSS

An APSS provides a tax efficient mechanism to give shares to your employees. Revenue approval is required to operate an APSS.

Subject to certain conditions, your employee will be exempt from an Income Tax (IT) charge on the share appropriation. Your employee will still be liable to Universal Social Charge (USC) and employee Pay Related Social Insurance (PRSI). You must collect the USC and employee PRSI under the Pay As You Earn (PAYE) system. Employer PRSI does not apply to share-based remuneration.

A trust is required to acquire and hold the shares for the participating employees. The shares must be ordinary shares. The shares must be held in trust for a minimum of two years. After that time, participating employees can dispose of the shares, but they will be subject to IT.

Capital Gains Tax (CGT) may also be due where the shares are disposed of.  Alternatively, shares disposed of after three years will be exempt from income tax, although CGT may apply.

You can claim a Corporation Tax deduction for your contributions to the trust and the cost of establishing the scheme.

All of your employees who satisfy the qualifying conditions must be eligible to participate on similar terms.

Reporting requirements

The trustees of an APSS must file an annual return, Form ESS1, on or before 31 March following the relevant tax year. A nil return must be filed in respect of years with no scheme activity.

The Form ESS1 must be filed online. Failure to make a timely return can result in withdrawal of approval of the scheme.

ESOT

An ESOT is a tax-favoured trust mechanism established by a company for placing shares into the hands of employees. Shares can be retained in the trust for up to 20 years for distribution to employees. ESOTs are normally used in tandem with an APSS.

The company establishing the ESOT must not be under the control of another company. Schemes to date have mainly been set up by state and semi-state bodies.

Reporting requirements

The trustees of an ESOT must file a Form ESOT1 by 31 March following each relevant tax year.

Next: Save As You Earn (SAYE) schemes