The government has been told that a tax scheme introduced in 2018 to help smaller companies compete with multinationals by giving employees shares is having little impact and needs to be changed.
Invaders KPMG said the Key Employee Engagement Program (KEEP), a tax incentive on shares in small and medium-sized firms, will cost €600,000 in 2021, well below its budgeted €10m.
“The low offtake of this tax incentive points to the fact that the terms and conditions of the scheme are very complex and do not relate to the business reality of SMEs’ operations,” said Thalia O’Toole, tax director, KPMG.
KEEP was introduced in 2018 to help start ups and small firms to woo employees.
It exempts workers and directors from paying income tax, USC or PRSI on their shares, and withholds capital gains tax until the shares are sold.
But KPMG said access to the plan was complex and costly, with uncertainty over the tax treatment of share buybacks and very strict limits on share valuations and the types of companies and workers participating in the plan.
Ms O’Toole said: “There is a need for a more flexible plan to help level the playing field for small home businesses, which are struggling to attract and retain key workers and those who are struggling with large businesses.” may not match the wages paid by the employers.”
KPMG has formally presented the plan as part of the Department of Finance review ahead of the next budget.
The Irish ProShares Association (IPSA) lobby group has also criticized KEEP as too complex, saying it will need to be “substantially reformed” if it is to help smaller firms attract workers.
Ministers have said that they are considering a change in the practice of capital gains under the scheme.
The government believes that reforming the KEEP is the next step in making Ireland more attractive to start-ups, as it has increased tax relief for equity investors in the 2022 budget and €90m for start-ups Seed Fund has been launched.
KEEP isn’t the only scheme that has seen low take-up. The Special Assignee Relief Program – a partial tax exemption for foreign workers stationed in Ireland – was used by just 1,500 people in 2018.
