Budget 2019 – improvements in the KEEP share scheme

Budget 2019 – improvements in the KEEP share scheme - Crowe Ireland

Crowe tax partner John Byrne outlines some good news for the KEEP share scheme

There was some good news announced in Budget 2019 around the Key Employee Engagement Programme (KEEP).

The KEEP scheme is a tax-advantaged share scheme, intended to allow Irish employers to compete with the share option schemes used by large multi-national employers to attract and retain employees. The main benefit of the schemes that the multi-national companies use is that employees can quickly convert their shares into cash by selling them. This is not possible for shares held in private Irish companies as it is not easy to convert them into cash.

The KEEP scheme compensates for this by providing a scheme that allows employees to realise their shares and pay capital gains tax at 33%/10% rather than income taxes of up to 52%. This scheme should benefit key employees and their employers.

Uptake in the last 12 months has been disappointing and the improvements outlined below that were announced are designed to improve uptake.

Budget 2019 introduces three separate measures:

  1. Increase the ceiling on maximum annual market value of shares that may be awarded to equal the amount of the salary (up from 50%)
  2. Replacement of the three-year limit with a lifetime limit
  3. Increase the quantum of share options that can be granted under the scheme from €250,000 to €300,000

The government could look at the equivalent Enterprise Management Incentive (EMI) Scheme that successfully operates in the UK. Under this scheme the 10% capital gains tax rate applies; it is open to a broader range of companies and the rules are simple to understand.

From speaking about the KEEP scheme to employers over the last 12 months, the complexities of the Irish scheme are a clear disincentive and it is hoped that some of these rules will be simplified n the Finance Bill to be published next week.

Read our in-depth analysis of share-based remuneration schemes: Share-based remuneration schemes – which is best?

If you would like assistance in developing an employee incentive scheme for your business, please contact a member of our tax team.