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Swedish scheme to eliminate income tax on employee stock options for start-ups

The European Commission (‘EC’) has approved under EU state aid rules a Swedish scheme (the ‘Swedish Scheme’) which eliminates income tax on employee stock options in small start-up companies. In order to avail of the tax relief under the Swedish Scheme, companies must be less than ten years old, have fewer than 50 employees and have revenue of less than 80 million kronor (€8.3 million).

In a press release on 26 June 2017, the EC stated in respect of its approval of the Swedish Scheme that ‘by decreasing the overall employment costs for young and small companies that award employee share options, the measure aims to reduce the financial risks linked to hiring new employees and to encourage employees to continue working in smaller companies.’

A similar employee share option scheme exists for small companies in the UK, known as the Enterprise Management Incentive (the ‘EMI’). The EMI provides relief from capital gains tax (‘CGT’) on the disposal of the employees' shares and relief from income tax where the company's share price increases between the time of the grant and the exercise of the share option. The EMI applies to companies that have fewer than 250 employees and gross assets not exceeding £30 million.

Ireland's existing share-based remuneration schemes have been criticised for their failure to incentivise share ownership by employees in start-up companies and SMEs. The two categories of employee share schemes currently available in Ireland are:

  1. revenue approved schemes, which require all employees to participate on equal terms;
    and
  2. unapproved share schemes, which afford greater flexibility but which are generally subject to income tax, employee PRSI and USC on the exercise of the share option and CGT on their disposal.

As Revenue approved schemes do not allow companies to reward key staff on a selective basis, they are not frequently used by start-ups or SMEs. Due to the high taxes which apply in respect of shares granted under unapproved schemes, participation may be less attractive to employees. An inability to offer a competitive remuneration package can make it difficult for smaller companies to attract and retain key talent and compete against their larger rivals.

While the Department of Finance received a number of submissions which called for the abolition of income tax on the grant of employee share options and the removal or reduction of CGT on the disposal of such shares as part of its Tax and Entrepreneurship Review in October 2015, these proposals were not implemented. However, in light of the approval by the EC of the Swedish Scheme under EU state aid rules, the Irish government may now be encouraged to review its existing schemes in order to ensure the competitiveness of start-ups and SMEs in Ireland.

ICSA’s Excellence in Governance Awards is judged by two independent judging panels. Judging takes place in July and August, with the shortlist announcement in early September.

 

Transparency in governance categories

Transparency in governance categories are judged by Hermes and ISS. Hermes helps institutional shareowners around the world to meet their fiduciary responsibilities and become active owners of public and private companies. Their team of engagement and voting specialists monitor its clients' investments in companies and intervene where necessary with the aim of improving performance.

 

Our judging criteria for these categories stipulate good and poor practice within each category area.

 

Ø  Download the transparency in governance category judging criteria. [LINK]

 

Company secretary award categories

Company secretary award categories are judged by a select panel of five judges, all highly experienced in company secretarial and governance fields, spanning private and not-for profit sectors.

To allow our judges to assess nominations fairly and objectively, all nominations are judged on the same criteria. Nominators will be asked to submit biographical information of the nominee and a general statement in support of the nomination, plus specific examples or evidence of achievement across the following six areas:

1.       Company law, regulation and compliance. Demonstration of the meeting of their organisation’s legal obligations and keeping on top of legislative development and change; examples of excellence in the design and maintenance of efficient and effective control systems for ensuring compliance.

2.       Corporate governance and shareholder relations. Demonstration of measures implemented to improve the effectiveness of corporate governance and shareholder communication within their organisation.

3.       Corporate restructuring. Demonstration of having undertaken acquisitions, disposals and any other significant restructurings or transactions.

4.       Information management and communication. Examples of excellence in the management, retrieval and dissemination of information, including the harnessing of information technology to aid performance; evidence of timely and effective communication with both internal and external stakeholders.

5.       Leadership and management. Evidence of circumstances where an individual has shown exemplary leadership and management.

6.       Innovation. Examples of achievements using new thinking to solve issues and problems.

We ask nominators to include evidence of achievement in at least three of these six areas.