Ireland's Key Employee Engagement Programme (KEEP) is a share option program, intended to help Irish SMEs attract and retain talent in a highly competitive labor market in a tax-efficient way. KEEP, and improvements to the scheme included in the 2018 Finance Act, are summarised in this blog.
KEEP Tax Relief
The main tax benefit of KEEP is that any income gain realised on the exercise of a qualifying share option granted to an employee on or after 1 January 2018, and before 1 January 2024, is exempt from income tax, Universal Social Charge (USC) and Pay-Related Social Insurance (PRSI). However, any gains will be subject to capital gains tax (currently 33%).
In order to qualify for the KEEP, an option must be exercised within 10 years of grant. Therefore, the latest date on which a KEEP option could potentially be exercised is 31 December 2033, assuming the option was granted on the latest possible date of 31 December 2023.
Share options granted on or after 1 January 2024, will not qualify for this tax exemption.
In order to qualify for KEEP, both the employee/director and the company must meet certain requirements.
The employee/director must:
• be a full-time employee/director (30+ hours per week) of the qualifying company throughout the entirety of the relevant period;
• be capable of lasting at least 12 months in their employment/office from the date the KEEP options are granted;
• not hold a material interest (15%) in the qualifying company; and
• hold the options for 12 months prior to exercise (limited exceptions).
The qualifying company must:
• be incorporated in Ireland or in another EEA state and carry on business in Ireland through a branch or agency;
• exist wholly or mainly for the purpose of carrying on a "qualifying trade" on a commercial basis with a view to the realisation of profit;
• be a micro, small, or medium-sized enterprise within the meaning of the law;
• be an unquoted company;
• not be regarded as a company in difficulty for the purposes of EU state aid rules; and
• not issue qualifying share options with a market value exceeding €3m.
The share options must:
• be related to shares which are new ordinary fully paid-up shares in a qualifying company;
• be granted at the market value of the same class of shares at the date of grant;
• be subject to a written contract of agreement setting out the relevant details;
• not be exercisable within 12 months from the date of grant; and
• not be exercisable more than 10 years from the date of grant.
Finance Act 2018
A number of enhancements to the KEEP scheme were announced in the 2019 Budget and included in the 2018 Finance Act.
• an increase to the ceiling on the maximum annual market value of share options that may be granted under the scheme to 100% of salary, up from 50%;
• replacement of the current three-year limit with a lifetime limit; and
• an increase to the overall value of options that may be awarded per employee from €250,000 to €300,000.
While prior Revenue approval is not required to access the KEEP scheme, the qualifying company is required to make an annual return setting out details regarding all options granted, exercised, assigned or released.