Enterprise Management Incentives (EMI) are UK tax advantaged share option schemes designed to help small, higher risk companies to recruit and retain employees. EMI options can be granted by independent trading companies with gross assets not exceeding £30 million.
Options over shares with an unrestricted market value (UMV) at the date of grant up to £250,000 can be granted. I understand that there will normally be no income tax or National Insurance Contributions when the options are exercised.
There is no approval process or clearance mechanism for EMI, but a simple requirement on companies to notify HMRC within 92 days of when an EMI option is granted. In addition, I understand that there is also an annual reporting requirement. This scheme is a form of State Aid, and as a result many trades are excluded.
I do not consider the scheme to be a threat to investment in Irish SMEs. This Government fully supports employee financial participation and provides several schemes to encourage employees to take a share in their employing company, which are not subject to the same limits as the UK scheme.
In Ireland, Revenue Approved Profit Sharing Schemes provide a mechanism whereby a company may allocate shares to its employees. Under an approved scheme an employee may be allocated shares up to a maximum annual value of €12,700. The employee is, subject to certain conditions, exempt from the income tax charge that would otherwise arise. Employee PRSI and USC are, however, chargeable. The participant may be liable to capital gains tax when he/she sells the shares if the disposal proceeds exceed the market value of the shares at the date of allocation and if the total gains are large enough to attract liability.
Since the legislation was introduced in 1982 Revenue has approved 566 schemes although not all are currently active. The estimated cost of approved profit sharing schemes in 2011, the most recent year for which figures are available, is €25.1 million. This relates to 34,477 employees receiving shares worth €81.4 million.
Savings-Related Share Option Schemes provide a mechanism whereby a company may allocate discounted shares to its employees. An employee is, subject to certain conditions, exempt from the income tax charge on the amount of the discount on the shares allocated to him/her.
There are two elements to a scheme:
(a) A save-as-you earn certified contractual savings scheme, and
(b) An approved share option scheme.
Under the terms of an approved Savings-Related Share Option Scheme, employees are given the right to purchase company shares at a pre-determined price. The employee enters a savings contract and makes contributions to a certified contractual savings scheme with a qualified savings institution for a designated period of time. At the end of the savings period the employee can exercise his/her option to acquire shares by using the monies saved over the savings period. If an employee chooses to exercise his option to acquire shares and the option price is less than the market value of the shares at exercise, the gain/discount is exempt from the charge to income tax. Employee PRSI and USC are, however, chargeable.
Since the legislation was introduced in 1999 Revenue has approved 162 schemes although not all are currently active. The estimated cost of these schemes in 2012, the most recent year for which figures are available, is €2.6 million which relates to the exercise of 1,942 options at a market value of €20.7 million.
Many companies offer other forms of share based remuneration to employees. Apart from the two tax-advantaged schemes already mentioned, all other forms of share based remuneration are subject to Income Tax, PRSI and USC either at source, through the PAYE System, or under Self Assessment. There is no obligation on a Company to notify Revenue of the existence of a share scheme in operation in a company and consequently there are no statistics available in relation to either the number of companies offering share schemes or the number of employees availing of them. As there is no tax relief available for such schemes there is no cost associated with the operation of such schemes.
I would also draw the Deputy's attention to the R&D tax credit which is an important corporation tax support for companies in Ireland. The central purpose of the R&D tax credit is to encourage companies to undertake high-value add R&D activity in Ireland, thereby supporting jobs and investment here.
There is an element of the credit, known as the "Key Employee" provision, which was introduced in Finance Act 2012 and allows a company to transfer the tax-free benefit of the R&D tax credit to employees who meet certain conditions.
The purpose of the measure is to assist companies, particularly small and medium sized companies, to attract and retain key talent i.e. individuals with the requisite skill and experience to work in the field of R&D in the State. This is a particularly flexible element of the credit that is unique to Ireland.
