Share Option Changes – 2024 – Ireland

From 1^st January 2024 employers will be required to report, collect and remit Income Tax, USC and PRSI, under the PAYE system, on any gains arising on the exercise, assignment or release of unapproved share options by employees and/or directors.  From 1^st January 2024, the tax collection method for share option gains will become a real-time payroll withholding obligation for the employer instead of the individual self-assessment system known as the Relevant Tax on Share Options (RTSO) system.

These new rules are a welcome development for employees and directors who, from 1^st January 2024, will no longer be responsible for filing and submitting Income Tax, USC and PRSI arising on the exercise of their share options.

Employees may still, however, be required to file an Income Tax Return for a relevant tax year, if that individual remains a “chargeable person.”

The due date for such returns is 31st March 2024 and there are different returns required depending on the type of share scheme operated / share remuneration provided.

Penalties for failure to file Returns may apply.

The following Forms are required for the following share schemes:

1. Form RSS1 for share options and any other rights to acquire shares or assets awarded to employees and Directors. https://www.revenue.ie/en/employing-people/documents/form-rss1.xlsm

2. Form KEEP1 – Key Employee Engagement Programme (KEEP) – Details of qualifying share options granted. https://www.revenue.ie/en/employing-people/documents/form-keep1.xlsm

3. Form ESOT1 – Employee Share Ownership Trust (ESOT) – Details of approved Employee Share Ownership Trust (ESOT) schemes. https://www.revenue.ie/en/employing-people/documents/form-esot1.pdf

4. Form ESS1 for details of Approved Profit Sharing (APSS) schemes. https://www.revenue.ie/en/employing-people/documents/form-ess1.xlsm

5. Form SRS01 for details of Save As You Earn Schemes (SAYE) https://www.revenue.ie/en/employing-people/documents/form-srso1.pdf

6. Form ESA – Restricted Stock Units (RSUs), Discounted / Free / Matching Shares, Employee Share Purchase Plans (ESPP), Restricted Shares, Convertible Shares, Forfeitable Shares, Phantom Shares, Stock Appreciation Rights, Growth/Hurdle/Flowering Shares and other Shares. https://www.revenue.ie/en/employing-people/documents/form-esa.xlsm

In circumstances where employers have globally mobile employees working outside Ireland for part of the year, the gains arising on the exercise of the stock option may need to be apportioned based on the number of days those employees worked in Ireland during the grant to vest period.  Employers will need to monitor the Irish workdays for these employees throughout the entire vesting period of the options.  Employers will also need to determine whether the stock option gain is exempt from PRSI.

Consideration must be given as to how the tax liabilities will be funded, especially in situations where there is insufficient income to cover the payroll taxes, where the globally mobile employee is not subject to Irish tax at the date of exercise but a portion of the gain has given rise to an Irish tax liability or where the employee or director has ceased their employment with the organisation. For example, by introducing a “sell to cover” mechanism.

In Summary:

• The RTSO system will be abolished with effect from 1^st January 2024.

• From 1^st January 2024, taxes arising on stock option gains will be collected through the payroll system.

• Currently there are no proposed changes that affect the obligation to file an annual RSS1 informational return by the employer. Therefore, the reporting obligations for share options by employers remain due on or before 31^st March of the following tax year.

• Share Option gains realised before 31^st December 2023 will be liable to tax under the self-assessment system with the employee being responsible for filing a Form RTSO1 along with the relevant tax payment within 30 days of the date of exercise.

Please be aware that the information contained in this article is of a general nature.  It is not intended to address specific circumstances in relation to any individual or entity. All reasonable efforts have been made by Accounts Advice Centre to provide accurate and up-to-date information, however, there can be no guarantee that such information is accurate on the date it is received or that it will continue to remain so. This information should not be acted upon without full and comprehensive, specialist professional tax advice.