Employee Share Plans in Europe and the USA - Sorainen

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Employee Share Plans in Europe and the USARepublic of Irelandexercise of the option 11 . For the 2010 tax year the income tax rates areeither 20% or 41% depending on the level of the employee's income.The amount of the income levy depends on the level of the employee'sincome. For the 2010 tax year, the levy rates are 2% on annual incomeup to and including €75,036, 4% for annual income in excess of €75,036but less than €174,980 and a charge of 6% on income from €174,980.5.1.3 Social security contributions: Social security contributions are notpayable.5.2 Employer tax and social security contributions5.2.1 Corporation tax deduction: In circumstances where an employermeets the cost of the difference between the option exercise price andthe market value of the shares at the date of exercise (the spread) acorporation tax deduction may be allowed provided that the cost of thespread is recharged or otherwise met by the employer, on an arm'slength basis. 12Costs associated with implementing a share option plan may be taxdeductible where the costs are of a revenue nature and are incurredwholly and exclusively for the purpose of the employer’s trade.5.2.2 Social security contributions: Social security contributions are notpayable.11 The income levy is payable under the self-assessment regime. The income levy should be taken intoaccount by the employee when making preliminary tax payment on account for the tax year in whichthe taxable benefit arises. If the income tax is not paid within 30 days then the optionholder may incurinterest for late payment.12A corporation tax deduction will only be allowable in respect of the employer contribution in a particularaccounting period to the extent that the employees are subject to tax (or would be subject to tax if theywere resident and domiciled in Ireland) in that accounting period or within nine months of the end ofthat accounting period. Where any amount is disallowed in a particular accounting period (i.e. becausethere is a mismatch between the timing of the employer contribution and the time at which theemployees are subject to tax), a tax deduction will be allowed in a subsequent accounting period to theextent that the employees actually receive taxable benefits in that subsequent accounting period. If theemployer's contribution exceeds the amount on which employees are liable to tax, then the amount ofthe deduction will be restricted to that lower amount.UK/1729295/03 107 September 2010
Employee Share Plans in Europe and the USARepublic of Ireland5.3 Favourable tax regimeThere are two tax favoured share option plans in Ireland: the Revenue approvedsavings related share option plan (SAYE Plan) 13 and the Revenue approvedshare option plan (Approved Plan). 1413The detailed requirements of an SAYE Plan are:• participation must be open to all employees or full-time directors who have been employed at alltimes during a specified qualifying period (which must not exceed three years). All employees mustbe eligible to participate on similar terms;• options cannot be exercised within three years from the date of grant unless the participant ceasesemployment due to injury, disability, redundancy or reaches pensionable age (66);• savings must be accumulated over a period of three or five years (in the case of 5-year savingscontracts, the rules may provide for savings to be held for a further two years);• the shares must be listed on a recognised stock exchange;• shares must be paid for by monthly contributions of between €12 and €500. These contributionsare paid into a Revenue approved certified contractual savings scheme held with a qualifyingsavings institution. A qualifying savings institution includes, amongst other things, a person who isa holder of a licence granted under Section 9 of the Irish Central Bank Act 1971, or a person whoholds a licence or other similar authorisation under the law of any other Member State of theEuropean Union, which corresponds to a licence granted under that section;• the shares must satisfy other conditions for example they must be fully paid up ordinary shares, notredeemable and not subject to any restriction other than restrictions which attach to all shares ofthe same class; and• the option exercise price can be at a discount of up to 25% of the market value of shares at thedate of the grant.Gains on the exercise of options under the plan are exempt from income tax. No social securitycontributions are payable.Capital gains tax rules apply to gains realised on the disposal of shares acquired through the exerciseof a share option. The base cost for capital gains tax purposes is the price paid for the shares on theexercise of the option plus the cost of the option (if any).Any terminal bonus or interest paid to a participating employee by a qualifying savings institution underthe Revenue approved savings contract is exempt from income tax and social security.The legal and accountancy expenses of establishing an SAYE Plan will be allowed as a deduction fromIrish corporation tax.14Approved Plans (known as ASOPs) were introduced by the Finance Act 2001. The main requirementsare:• an Approved Plan must be open to all employees and full-time directors;• at least 70% of options granted must be granted on a "similar terms" basis to all eligible employees.Similar terms can include options granted on the basis of length of service and level ofremuneration. An Approved Plan may contain a service requirement but, if so, this must not exceed3 years;UK/1729295/03 108 September 2010
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Employee Share Plans in Europe and the USA - Sorainen

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