Share option gains to be taxed through payroll from 1 January 2024

From 1 January 2024, employers will be required to withhold Irish payroll taxes from gains arising on the exercise of share options.

This will be a significant change, as up to now, the onus was on employees (and directors) to pay the “Relevant Tax on Share Options” (RTSO) through self-assessment to the Irish Revenue within 30 days of the date of exercise.  The employees also had to submit Form RTSO1 to the Irish Revenue within the same timeframe.

This change is contained in Finance (No. 2) Bill 2023, which is due to be signed into law by 31 December 2023.

What should employers consider?

There are a number of practical issues that employers should consider:

  • The timing of this change does not give employers much time to prepare. This change also coincides with the introduction of the new “Enhanced Reporting Requirement (ERR)” for employers from 1 January 2024, which will be quite onerous for employers also.
  • The administration of payroll tax withholding will need to be carefully managed by employers. Some employers may operate a ‘sell to cover’ arrangement, which involves the sale of sufficient shares to cover the taxes due.  Employers will need to consider how they will manage this in practice, and they should ensure that employees communicate their intention to exercise share options with employers in a timely manner in order to help employers meet their withholding tax obligations.
  • Employers should consider how the tax liabilities will be funded, as there could be a delay between the exercise of options and the issuance of shares.
  • If employers have any employees who worked in Ireland between the date of grant and vesting of share options but have left Ireland, an Irish tax liability may arise on exercise of those options, and, if so, employers will have to operate payroll tax withholding.
  • Employers are required to submit a Form RSS1 for 2023 to Revenue by 31 March 2024 in relation to share options that were granted, exercised, transferred, assigned or released during 2023.

If you have any questions in relation to the above, or if you would like to discuss this topic further, please contact a member of the Mazars employment tax team below:

Staff Member

Position

Email

Telephone

Ken Killoran

Tax Partner

kkilloran@mazars.ie

01 449 4451

Mark Spelman

Senior Tax Manager

Mark.Spelman@mazars.ie

01 449 6457 

 December 2023