Tax on Employee Share Purchase

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wanderer

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Still confused about tax on share purchase/sale, so need some simple explanation.

Assume purchase of shares via an employee share purchase plan (non-approved scheme).

€ 10,200 put into purchase plan from salary

Does share purchase equate to the € 10,200 or is it: € 10,200 - paye,prsi, usc etc?


Then, in the first instance:

If it is € 10,200 worth of shares and
 €12,000 - is the price sold for
with €1,800 profit.

What would be the breakdown of taxes due on this?
And when is it due?
 
Share purchase is the amount you paid for them out of post tax income, i.e. €10,200.

Assume they are shares and not share options -- options are subject to income tax and other usual taxes. Shares are subject to CGT @33% if sold on or after 7th December 2012, 30% before that. Sorry, not sure about the current situation with regard to PRSI, hopefully someone else can answer.

If you sold them up to the end of November, tax is due by 15th December. If sold in the month of December, tax is due by 31 Jan 2013. Note that you only have to make a payment, you do not have to make a tax return until Oct 31 2013. You can account for them on your tax return, taking into account the payment you have already made.
 
ESPPs are a little complicated. In my experience people are pulling out of ESPPs and even some companies are abandoning them due to hassle and taxation levels. It’s quite easy to make a loss on them particularly for smaller purchases of a few hundred euro, the tax is now 52%, has a tight payment deadline and makes no allowance for
-selling charges
-losses due to currency conversions
-losses due to a fluctuation in share price post official end of ESPP period and availability of sales for sale
-delays in receiving and cashing foreign cheques.

(At 41% tax it was easier to absorb the charges that revenue ignore.)

Revenue for filing purposes lump them under the stock option heading – which is a bit lazy but has some justification as your company is giving you an option to buy shares at the better of two prices.

You need to pay the tax as income tax (PAYE+USC+PRSI). CGT is generally not relevant since most people need to sell the shares as quickly as possible as they’ve only 30 days to pay the tax bill. Also the amounts are relatively small and often and capital gains falls well under the CGT threshold.

For € 10,200 worth of shares sold at €12,000 – then that would simply be 52% of 1800 or 936 euro tax bill – you need the RTSO 1 form filled in and paid within 30 days of the end of the ESPP period, then you need to fill in the same details in the tax Form 11 for that year. I’m not sure if you’ve a discount for these shares – if so you need to pay income tax on that as well.


This old worked example from revenue may help. http://www.revenue.ie/en/about/foi/s16/income-tax-capital-gains-tax-corporation-tax/part-05/05-05-11.pdf?download=true


Employee Share Purchase Plans (ESPP)
In addition to share option schemes many companies, particularly subsidiaries or branches of US corporations, also operate Employee Share Purchase Plans. An Employee Share Purchase Plan enables the employees of the company to purchase shares in the company or its parent company at a discount, through deductions from the employee’s net salary or wages.
The discount allowed is normally 15% of the market value of the shares on either the first or last day of the offer period whichever is the lower. The offer period is normally six months.
Example
If the shares are trading at US$65 at the beginning of the six month offer period on the Stock Exchange and trading at US$72 at the end of the six month offer period the shares can be purchased at 85 % of US$65 (US$55.25 per share). The charge to income tax will be US$72 less US$55.25 per share. In this instance the amount charged to income tax is more than 15% of the market value of the shares at the date of purchase.
 
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