Employee Share Option Schemes
In Ireland, employees can avail of certain share options from their company that may be ‘tax free’ or ‘tax efficient’. However, it is useful to bear in mind that there are few benefits employees can receive that are completely ‘tax free’ based on tax on savings and investments.
There are two main ways an employee can benefit from shares in the company:
- Approved Profit Sharing Schemes
- Stock Options
Budget 2011 made a number of changes to the tax treatment of gains arising from various types of share schemes, including making such gains chargeable to the Universal Social Charge (USC) and PRSI.
Approved Profit Sharing Schemes
Approved Profit Sharing Schemes allow an employer to give an employee shares in the company up to a maximum value of €12,700 per year tax-free. Approved Profit Sharing Schemes are subject to certain conditions set out in legislation and administered by the Revenue Commissioners. Providing the scheme meets the required conditions, an employee will pay no tax on shares up to a maximum value of €12,700 per year. The employer must hold the shares for a period of time (called the “retention period”) and the employee must not dispose of the shares before three years.
If an employee disposes of shares before this time, he or she is liable to pay income tax on whichever is the lower of the following:
- The market value of the shares when they were given to the employee or,
- The value of the shares at the time of sale
Approved Profit Sharing Schemes are subject to a number of conditions that should be checked with the Revenue Commissioners:
- Stock options in your employer’s company
- Revenue approved Savings-related Share Option Schemes allow you to save for and purchase share options in your employer’s company tax effectively (you should check with the Revenue Commissioners and your employer as to what rules apply to your share options and when you are liable to pay tax)
Deposit Interest Retention Tax
Financial service providers such as banks, building societies and post offices, offer accounts where you can save a sum of money (a deposit) for which they will pay you an annual rate of interest in return, usually as a percentage of the deposit. The interest you receive is subject to a tax called Deposit Interest Retention Tax (DIRT). From 1 January 2014, DIRT is charged at 41% on all interest payments. For 2013, the rates were 33% for ordinary deposit accounts and 36% for long-term deposit accounts. You can see historic DIRT rates on revenue.ie. The tax is deducted by the bank or other deposit-taker before the interest is paid to you. If you request it, you are entitled to be given a statement of the amount of DIRT deducted from your interest. DIRT is a final liability for income tax purposes. This means that if you have paid DIRT you do not have to pay any further income tax or Universal Social Charge on the interest but it is declared as income if you are making a tax return. However in some circumstances you may have to pay PRSI on deposit interest you have received.
DIRT does not apply to interest on deposits owned by:
- Companies that are liable to corporation tax
- People not resident for tax in Ireland (see also below)
- Revenue-approved pension schemes
It was announced in Budget 2014 that the rate of Deposit Interest Retention Tax (DIRT), and the rates of exit tax that apply to life assurance policies and investment funds, is being increased and will now be 41% whether payments are made annually or more frequently (previously 33%) or are made less frequently than annually (previously 36%). The increased rates will apply to payments, including deemed payments, made on or after 1 January 2014.
Exemptions and refunds
Certain people may qualify for a refund of DIRT or may have their deposit interest paid without the deduction of DIRT. You must apply to have your deposit interest paid without the deduction of DIRT – see ‘Where to apply’ below.
People aged over 65
You can get your deposit interest paid without the deduction of DIRT or you can claim a DIRT refund, if you are over 65 :
- Your income (including your spouse or civil partner’s income) is less than the low income exemption limits for people aged over 65 or
- Your tax liability (including your spouse or civil partner’s income) for the year is less than your tax credits (including your spouse’s) for that year.
In general, joint accounts where one of the account holders is aged 65 or over will only qualify for the refund of DIRT if the other account holder is that person’s spouse or civil partner. However, if another person, such as your son or daughter, has the authority to operate your bank account on your behalf, and is named as an account holder for this purpose only, you will continue to qualify for the refund of DIRT provided you are the beneficial owner of the account. In this case, when claiming a refund of DIRT, you must include a declaration that you (not your child) are entitled to all of the interest paid in respect of the deposit.
People with disabilities
You can get your deposit interest paid without the deduction of DIRT or a DIRT refund, if you are:
- Permanently incapacitated from maintaining yourself and
- Your tax credits (including your spouse’s) for the year exceed the tax that would be chargeable on your (and your spouse’s) income for the year
- If you are not resident in Ireland for tax, you may get a refund of any Deposit Interest Retention Tax deducted from your Irish deposit interest. To get a refund of DIRT, Ireland must have a double taxation agreement with the country you are resident in. DIRT will be refunded under the terms of that agreement.
- If you are not resident in Ireland you may get your Irish deposit interest paid without the deduction of DIRT. A non-resident person does not have to be a resident of a country that has a double taxation agreement with Ireland to apply for a DIRT exemption. You should contact your financial institution to find out if you can be exempt from paying DIRT. You will have to complete a Non-Residence Declaration. You must notify them if you become resident again.
From 1 January 2014 all credit union share dividend and deposit interest paid to members is subject to DIRT, with the exception of dividend or interest paid to members who are exempt from DIRT (certain people over aged 65 and certain people who are permanently incapacitated). Before 2014 certain types of credit union accounts were not subject to DIRT. Special term share credit union accounts opened in the period 1 January 2002 to 15 October 2013 allowed a member of a credit union to opt to hold shares in the account for a minimum term of either 3 or 5 years. A tax exemption applied to dividends from these accounts.
This tax exemption was:
- For the first €480 per annum of dividends where the funds are invested for a minimum of 3 years, and
- For the first €635 per annum of dividends where the funds are invested for a minimum of 5 years.
These accounts can no longer be opened from 16 October 2013. However if you had one of these accounts and the funds in the account mature after 16 October 2013 the tax exemption on dividends is still available. The remainder is liable to the appropriate rate of DIRT (41% from 1 January 2014).