Employee incentives

Share based remuneration offers Irish employers a valuable opportunity to retain and incentivise employees and generate higher productivity through employee buy-in. There have been some changes introduced around the taxation of share-based remuneration in Ireland in the past year and it is an area that is currently on the Irish Government’s radar. This may be an indication that there will be further, more notable changes, announced in the upcoming Budget.

Additionally, ensuring that Ireland has an attractive tax regime that encourages employees to relocate from overseas, is key to ensuring continued investment in Ireland by foreign multinational companies. Tax reliefs for inbound employees such as The Special Assignee Relief Programme (SARP) are important reliefs that we hope to see extended beyond 2025.

Reform
Prior to this year, where an employee exercised stock options, the obligation rested entirely with the employee themselves to calculate their tax liability on the exercise and to then subsequently report the exercise and pay over the relevant tax to Revenue. Irish Revenue carried out a review of how this was operating in practice, and from 1 January 2024 the obligation shifted from the employee to the employer and share option exercises must now be processed by the employer via payroll. It is our view, that this change arose due to non-compliance by employees and therefore an under reporting of tax on share options. This was a significant change to the operation of tax on share options and is an indication of Revenue’s increased focus on the area of share-based remuneration.

Additionally, to assist the Department in carrying out a more detailed review of share-based remuneration, a public consultation process was launched earlier this year encouraging stakeholders to submit their views. There have been increased Revenue activity in this area and we have been seeing more Revenue interventions and reviews, which may be for the purposes of the gathering information for this review. The results of this Departmental review may lead to some further changes being announced in the upcoming Budget for 2025.

Restrictive Stock Units (RSUs)
The taxation of RSUs in Ireland is at odds with how other types of share-based remuneration is taxed in Ireland and with how other jurisdictions tax RSUs.

The taxation of RSUs in Ireland is fully dependent on the employee’s residence status. If an employee is resident in Ireland at the time of vest, the entire amount of the RSU vest is taxable in Ireland. Conversely, if the employee is non-resident at the time of vest, the RSU vest falls outside the scope of Irish tax altogether. This gives rise to potential tax planning opportunities where an employee has an RSU vest in a year that they arrive or leave Ireland and may benefit from being non-resident in Ireland for that year.

Where an employee relocates to Ireland and has a taxable RSU vest due to their residence status, there is often a double tax charge as their home jurisdiction will likely tax the RSU vest based on the amount of the vest that is referrable to duties exercised in that jurisdiction, and a foreign tax credit is required to be claimed for the element of double tax. Because Ireland does not have the same sourcing rules for RSUs as in most other countries, there is a misalignment in the tax treatment, and this may be a potential area of reform that the Government could introduce to bring Ireland in line with other countries.

Employer PRSI on share settled remuneration
At the moment, employer PRSI, which is currently at a rate of 11.05%, does not apply to share-based remuneration. This exemption is attractive to employers wishing to implement share schemes as it reduces the cost of the scheme for employers and favours share-based remuneration rather than cash remuneration.

This exemption does not apply to cash-settled awards. For example, phantom share schemes where an employee effectively receives a cash bonus rather than actual shares. Employer PRSI will apply to this payment.

Although this would not be a welcome change for employers, the Government may look to introduce PRSI on share-based remuneration to mirror the treatment of other employment income.

BIK on preferential loans
One of the key issues for employees who exercise stock options is finding a way to fund the upfront tax cost on the exercise of share options. This is particularly difficult where the shares are in a private company and there is no available market for the employees to dispose of some of their shares to generate cash.

Employers can sometimes provide employees with a loan to fund their tax liability at the time of exercise, however such a loan from an employer to employee is considered a preferential loan and attracts a benefit-in-kind (BIK) rate of 13.5% a year until the loan has been repaid to the employer.

We would like to see the removal of this BIK charge entirely in such cases, or at least would like to see the interest rate reduced in line with current commercial bank lending rates.

Special Assignee Relief Programme (SARP)
The Special Assignee Relief Programme (SARP) introduced in 2012 and aimed at high-net-worth individuals relocating to Ireland has a sunset date of 31 December 2025.

SARP relief can be an extremely valuable relief and has been an incentive for employees relocating to Ireland from many of the large multi-nationals, particularly a lot of the large US tech companies.

We have seen some changes to the relief in recent years whereby the conditions are becoming more restrictive. The minimum base salary threshold to qualify for the relief increased from €75,000 to €100,000 from 1 January 2023.

There are also restrictions on the amount of time that an employee may spend in Ireland in the 6 months prior to the individual’s relocation, which is currently limited to a short look-see visit to find accommodation and a maximum of 5 workdays in the 6-month period. This is often not practical for the employee, particularly in this new age of remote working, and is a condition that we would like to see relaxed.

We would advocate for the legislation to be written without a sunset date at all, but would strongly hope that the relief’s extension beyond December 2025 is announced in this year’s budget.

Register and join us for our Budget 2025 webinar to discuss this topic and many more.