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Share Option Taxation 2024 | What you need to know!

As we step into the new year, significant changes await employers and employees involved in share options in Ireland. The Finance Bill (No.2) of 2023, published on October 19, 2023, introduces a substantial amendment to the taxation of employee share option gains. Effective January 1, 2024, the collection method for taxes on share option gains undergoes a transformation, becoming a real-time payroll withholding (PAYE) obligation for employers.

Breakdown

Share options have long been a prevalent form of share-based remuneration in Ireland. Until now, gains from the exercise, assignment, or release of share options were taxed under the Relevant Tax on Share Options (RTSO) system, requiring employees to settle their taxes within 30 days.

New Employer Obligations

The Finance Bill abolishes the RTSO system, ushering in a new era for employers. From January 1, 2024, employers must account for Income Tax, Universal Social Charge (USC), and Pay Related Social Insurance (PRSI) through the PAYE system for share option gains. While the employee may still need to file an income tax return, the annual RSS1 informational return obligation for employers remains unchanged.

Things to consider

The transition to real-time reporting poses challenges for employers, especially given the tight timeframe for implementation. Clarity is needed on what constitutes “real-time” for options under PAYE rules. Employers must ensure adequate provisions are in place for calculating option gains and executing a ‘sell to cover’ mechanism when necessary.

For globally-mobile employees, the calculation of taxable gain becomes intricate, considering factors like residence at exercise, location of workdays during the vesting period, and tax treaty provisions. Employers also face potential trailing payroll obligations for former employees and directors exercising options after leaving the business.

What’s next?

In anticipation of formal Revenue Guidance, employers should take proactive steps:

Review current Share Option and Employee Share Purchase Plan arrangements.

Consider the impact of new provisions on globally mobile employees and former employees/directors.

Identify stakeholders responsible for providing information for payroll withholdings.

Prepare employee communications detailing the tax shift to payroll and ongoing responsibilities.

Conclusion:

The 2024 changes mark a significant shift in how share option gains are taxed in Ireland. As employers gear up for these changes, understanding the implications and preparing for compliance will be crucial. Stay tuned for further guidance from Irish Revenue in mid-late December 2023.