Legal analysis
Historically, Irish employers were not typically subject to any tax withholding and reporting obligations in connection with employee share options (other than annual tax reporting obligations to Irish Revenue via Form RSS1). Rather, employees personally were responsible for reporting any taxable income arising upon the exercise of unapproved share options and paying the applicable income tax, USC, and PRSI charges within 30 days of the date of exercise (via Form RTS01).
Under the new requirements, the responsibility for tax withholding and reporting on the exercise of unapproved share options occurring on or after 1 January 2024 will shift to employers (unapproved share options exercised before 1 January 2024 will remain subject to the existing rules, which require self-reporting and tax payment by employees via Form RTS01 within 30 days of exercise). Further, employers will continue to be subject to the existing annual employee share option reporting obligations to Irish Revenue via Form RSS1 for calendar year 2023 (to be filed by 31 March 2024), but it is unclear whether additional/new reporting obligations will be established for unapproved share options for 2024 onwards, in conjunction with these changes.
Next steps
Currently, the Finance Bill is progressing through normal legislative channels, and although further amendments are anticipated, it is expected that the Finance Bill will be finalized and enacted prior to the end of the calendar year 2023.
Given this short timeline before the new requirements are expected to become effective in January 2024, employers should closely review and modify their existing payroll procedures on an expedited basis to ensure that they will be able to comply with the new tax withholding and reporting requirements for unapproved share options (including stock purchase rights that are subject to taxation as unapproved share options). Further, employers should review and update all share option grant documentation (e.g., award agreements, employee communication materials, tax discussions) to ensure they accurately reflect the new employer tax withholding and reporting obligations for employee share options.
We would like to thank our colleagues at A&L Goodbody LLP, Matheson LLP and McCann FitzGerald LLP for their assistance with this alert. Their guidance and commentary can be directly accessed via the following links: A&L Goodbody LLP, Matheson LLP, and McCann FitzGerald LLP.
