Non-resident Share Options Tax

[harmlessdonkey]

Hey,

I’m Irish but have been living abroad for the last couple of years. I have share options in a large private company from my time working in Ireland (pre-IPO). I don’t expect the company to IPO for another year or two, but the valuation seems to keep increasing with each private funding round.

My understanding is that if I exercise the options now, Ireland taxes the spread between the strike price (basically €0) and the current market value (around €1,200 per share) as employment income, so PAYE, USC, and PRSI all apply.

The reason I’m considering exercising now is that I currently live in a 0% CGT jurisdiction. So if I exercise now, any future growth between now and the IPO could potentially be tax free for me. If I wait until closer to IPO, I’d effectively be paying Irish income tax on all of that additional growth instead.

The painful part is that it seems to be taxed at the marginal rate with little/no Irish tax credits available to me as a non-resident. So I’m looking at having to front around 52% tax now, tying up roughly €30k for a couple of years.

We’re not talking life-changing money here, but I’d still like to structure it as efficiently as possible. Has anyone dealt with something similar or have ideas on minimising the hit? Pension contributions? Anything else worth looking at?

 

[newirishman]

Are you still tax resident in Ireland? If not, I fail to see how you would be liable for Irish income tax.

 

[harmlessdonkey]

No I'm not. But apparently income tax is due on options based on the country you were resident in at the time of the Grant not the time of exercise.

 

[AAAContributor]

apparently income tax is due on options based on the country you were resident in at the time of the Grant not the time of exercise

That's correct.

Where a charge to income tax under Section 128 TCA 1997 exists (i.e. unapproved share options which were granted in relation to an Irish employment or Irish performed duties of employment have been exercised, assigned or released), then the charge to income tax under Section 128 persists, even if the individual is no longer Irish tax resident at the time the share options are exercised, but double tax relief can apply.

If you are a resident of a DTA country where the terms of the DTA confine the charge to income tax to the period(s) of employment exercised in Ireland, the taxable amount could possibly be apportioned (depending on the specifics of the vesting schedule and when you became non-resident).

Have a look at Example 10 in Chapter 3 of the Tax and Duty Manual dealing with Unapproved Share Options to see if your circumstances could benefit from apportionment of any taxable amount for income tax.

 

[Ciru75]

If you have no other Irish income, the first 44k of the gain will be charged at 20% income tax, rather than 40%. You'll benefit from the lower bands of USC too so It shouldn't come close to 52% in total.