Revenue have recently stated that they are contacting employees of companies who have not met their income tax or capital gains tax obligations on unapproved share options.
Are you an employee or director of a company who has or had share options? Do you know the tax implications for you when you exercise these options? Do you know your capital gains tax obligations if you make a gain on the disposal of these shares.
When a company grants a share option to an employee, they are given the right to acquire a pre-determined number of shares at a pre-determined price for a predetermined period. Such option schemes are commonly referred to as “unapproved share option schemes”. If the share price rises and the employee exercises the option at the fixed price, the employee will make a gain.
Income tax on the exercise of the option is charged on the difference between the price paid (option price) and the market value at the date of exercise. This tax is known as Relevant Tax on Share Options (RTSO) and is payable to Revenue, along with Universal Social Charge (USC) and employee PRSI, within 30 days of exercise. A completed Form RTSO1 must also be submitted to Revenue within 30 days of exercise.
Employees must also submit an income tax return to Revenue containing details of the share option gain in a year, this return must be submitted by 31st October following the year in which the gains are realised.
If the option is capable of being exercised more than seven years from the date of the grant and is granted at less than market value, Revenue reserve the right to tax the employee on the grant of the option.
A Form RSS1 must be filed by the employer by 31st March following the year the options were exercised.
Unlike approved share schemes and share awards, the employee and not the employer is liable to pay the tax, PRSI and USC to Revenue.
Ireland may only tax the income gain arising to the extent that it relates to employment duties exercised in the State. Therefore, only gains that are attributable to any periods during which the duties of the employment were exercised in Ireland are taxable.
Capital Gains Tax(CGT) is payable on a gain on a future disposal of the shares after exercise. CGT is charged on the difference between the disposal proceeds and the purchase price paid plus the amount chargeable to income tax and, where appropriate, the cost of the option itself.
CGT is due by 15th December in year of disposal for disposal made between 1 January and 30th November of the same year. Tax is due by 31 January for a gain on disposals made in the immediately preceding December.