Finance Act 2011 and related social insurance changes in Ireland
made significant changes to the taxation of share incentives. Of
particular concern was a requirement to account for Irish social
insurance at 10.75% on the value of any award when vesting. The new
Irish Government has announced plans to repeal this employment
cost. However, it is anticipated that there will continue to be an
obligation on an employer to account for employee share incentive
gains. PAYE withholding tax is to be applied to share awards with
the exception of share options. The employer will be required to
deduct income tax and other charges arising on the share award from
the employee's net salary. Employee social insurance of 4%
and a new tax, the Universal Social Charge (which is normally 7%),
will also be deducted. Employee social insurance should only apply
where the share award/options were granted under an agreement that
came into effect on or after the 1st January 2011.
Employer's social insurance will not apply to any share
award. In the case where there is a timing difference between
vesting and settlement, the employer may deduct the tax on
settlement date, provided this is not greater than 60 days after
vesting. This is to provide an opportunity for the employee to sell
shares in order to discharge their tax liability.
Tax on share options shall continue to be paid directly by the employee to the Revenue Commissioners, but the employer is required to deduct employee's social insurance where it applies.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.