share option questions

[DazedInPontoon]

Hi,

I'm working remotely for a small private company based in another European country. I've been offered share options and I'm trying to understand what the implications might be of accepting them.

The options vest in a few years time, and expire a few years after that.

The company is private but has been independently valued. I'm being offered the shares at 20% below that value.

My first question is:
1) if I accept the options now do I have a tax liability this year (perhaps on the 20% discount) or is there no possible tax owed until the options vest?

Secondly, I'd like to know the outcome in terms of tax of each possible scenario:
2) When the options vest, I decline to purchase any shares (or decline some of them)
3) I leave the company before the options vest and thus forfeit the options
4) I purchase the shares and hold them.
5) I purchase the shares and the company is later sold, thus effectively selling my shares.

Since the company is small and private, I'm concerned that the chances of the shares increasing in value substantially is small, and also that the shares are not very liquid as probably the only chance to sell them will be if the entire company is sold.

Therefore if there's a lot of downside to accepting the options I'm wondering if it's actually worth it. I'd welcome any opinions of what anyone here would do in the same situation?

 

[RedOnion]

When you say you work remotely, I'm assumed the company have no official presence in Ireland? There is a KEEP scheme in Ireland, but there are criteria around carrying out business in Ireland.

Revenue issued updated guidance last year.

It looks like yours is an unapproved scheme, so chapter 3 applies. It's a pretty comprehensive document.

www.revenue.ie/en/tax-professionals/ebrief/2018/no-0562018.aspx

 

[DazedInPontoon]

Thanks for the link RedOnion, it contains at least some answers, but some questions remain open too.

For anyone else that might have the same questions, the answers I found to my questions are:
1) Unfortunately the answer seems to be yes (according to section 3.4.3) because the options don't expire in under 7 years after being granted, if they did the answer would have been no.
4) and 5) Pay income tax on the difference between the option price and the market value of the shares at exercise time. Pay capital gains on any subsequent gains.

Unfortunately the answers to these two question remains unclear:

2) When the options vest, I decline to purchase any shares (or decline some of them)
3) I leave the company before the options vest and thus forfeit the options
​

It is not clear that the tax paid upfront when the shares were granted can be claimed back in either of these cases, even though it would seem logical that it should be, as one would end up out of pocket overall in this situation. None of the example in the document seem to cover this case where long options are granted but never exercised. Can anyone clarify this situation?

It's also not explicitly stated when the tax is due on the grant of long options, though one can assume it's considered RTSO and treated similarly to tax due on exercised shares i.e. due within 30 days via Form RTSO1.

Thanks in advance for any further help anyone can provide.

​

 

[Ciru75]

2) Section 3.4.3 that you mentioned says that "credit is given for any income tax charged on the grant of the share option against the income tax due on the exercise, assignment or release of the share option." If you release the option, no tax is due and you'll be credited and refunded the tax you paid on the grant of the option.

3) These sound like forfeitable shares, dealt with in Chapter 6 on the link RedOnion posted. Basically you get the tax back if you forfeit the shares.