Unapproved share options are commonly granted as an incentive under employment contracts. The term 'unapproved' relates only to the fact that these schemes do not require approval from the Irish Revenue Commissioners.
Share option income
If you have been granted share options and the entire or a portion of the vesting period relates to a period where you were working in Ireland an Irish tax liability will arise. This article focuses on share options which have a vesting period of 7 years or less.
We summarise below the main tax issues to consider:
- no income tax, USC or PRSI arises on the grant of a share option
- no tax liability arises unless the share option is exercised, released or assigned
- when the share option is exercised income tax, USC and PRSI are calculated on the difference between the strike price (exercise price) and grant price
- where an option is assigned or released the above applies also
- CGT is payable on the gain arising on the subsequent disposal of the shares. However if the shares are sold immediately after the shares are exercised no chargeable gain arises (assuming the exercise price and disposal proceeds are equal).
A Form RTSO1 must be completed and lodged with the Revenue Commissioners within 30 days.
The employer must also complete Form RSS1 to report share options granted during the previous year.
- if you have relocated to or from Ireland the gain on exercise may need to be apportioned
- the correct foreign exchange rate should be used to convert FX amounts to euro at the date of exercise
- you are required to lodge an Irish tax return in a year you have exercised,released or assigned taxable share options
- there are foreign tax issues to consider where the share option income is taxable overseas also
Contact us if you would like assistance with reporting your share option income and ensuring the correct amount of Irish tax is paid.