Niall Collins (Limerick County, Fianna Fail)
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116. To ask the Minister for Finance the way in which the key employee engagement programme for SMEs will operate; when SMEs will be able to avail of this; if all SME business structures will be eligible to participate such as limited company partnership and sole trader; and the limit on options that can be granted tax free to qualifying employees. [45325/17]

Paschal Donohoe (Dublin Central, Fine Gael)
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In Budget 2018 I introduced the Key Employee Engagement Programme (KEEP) with the objective of supporting SMEs in Ireland in competing with larger enterprises to recruit and retain key employees. Share options can provide key employees with a financial incentive linked to the success of the company and may improve the attractiveness of an SME employment offer.

The incentive, due to commence on 1 January 2018 subject to EU approval, provides that gains realised on the exercise of a qualifying share option by employees of qualifying companies will not be subject to income tax, PRSI or USC at the date of exercise. Capital gains tax will arise on the gain on a subsequent disposal of the shares. In the absence of the KEEP incentive, such gains would be subject to income tax, USC and PRSI at the time of exercise. This can be a dis-incentive in the case of options for shares of small, unquoted companies, where no ready market may be available on which to sell some or all of the shares in order to fund the tax payable.

This provision will be available in respect of share options granted to employees during the period 1 January 2018 to 31 December 2023. The employee must work full-time for the company, with a minimum requirement of 30 hours per week. The share options must be granted at not less than market value at date of grant and must be held for a minimum period of one year before exercise (with limited exceptions) and a maximum period of ten years.

To avail of the KEEP the company must be a “qualifying company” which is a company incorporated and resident in Ireland or an Irish trading branch of an EEA resident company. The company must be unquoted (with the exception of a listing on the Enterprise Securities Market) and must be a micro, small or medium company. Sole traders or partnerships do not come within the remit of the KEEP.

In the case of KEEP share options, certain restrictions apply. For example, an employee may not hold more than 15% of the ordinary share capital of the company and the market value of all shares in respect of which qualifying share options have been granted cannot exceed €100,000 in a year; €250,000 in any 3 consecutive years; or 50% of the employee’s emoluments in the year of grant. A restriction is also placed at company level which limits the market value of issued but unexercised share options to €3,000,000.