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Transform your employees experience with an engaging Restricted Scheme administration Solution. Global Shares cloud-based Restricted Share Scheme administration software removes the complexity from share scheme administration by automating time-consuming tasks and administrative duties. Our flexible and customisable platform meets the unique requirements of each individual client. Learn more about how the Global Shares EquityGateway can help you!
A dedicated team of CEP qualified, Share Plan Analysts work with you and your team to implement and administer your chosen schemes, giving you complete confidence in plan success. Choose from a number of different administration options from full or partial administration outsourcing to a SaaS administration solution.
What is a Restricted Share Scheme?
A Restricted Share Scheme (“RSS”) or a Clog Scheme is a scheme whereby a participant is given or acquires shares in their employing company or its parent, with restrictions which require that the shares must be retained for a fixed period before they can be dispose of.
Why introduce a Restricted Share Scheme?
The payment of a discretionary bonus in the form of shares affords the employee the opportunity to reduce the tax, PRSI and USC charge compared to a cash bonus.
Restricted Share Scheme are generally used to target certain key individuals within an organisation.
Must all employees be offered participation?
No. A Restricted Share Scheme can be used to target and retain key individuals.
How does a Restricted Share Scheme work?
The scheme is established by setting up a trust or other holding mechanism to hold the shares during the restriction (or clog) period. The company makes a formal offer to the employee on the number of shares and the length of the clog and the employee must agree in writing, to the terms of the clog.
During the clog period, the shares may not be sold, transferred or used as a charge.
What are the taxation implications for the employee?
Under Irish tax legislation, employees are liable to income tax, PRSI and the USC on the value of any assets passed to them by their employer to the extent that they have not paid in full for the asset.
Under a Restricted Share Scheme, directors and employees can have the tax charge on the acquisition of shares reduced by an amount depending on the period of restriction as follows:On grant: the participant will be liable to income tax, PRSI and the USC on the abated value of the shares.
On maturity: there is no income tax, PRSI or USC when the shares mature from the clog.
On sale: the participant may, depending on their personal circumstances, be liable to capital gains tax on the subsequent disposal of the shares. Depending on whether the shares are provided by way of market purchase or an issue of shares the base cost for capital gains tax purposes can be either the abated amount or the market value of shares as at the date of acquisition.
What are Forfeitable Shares?
Forfeitable shares are shares where:
1) There is a written contract or agreement under the terms of which;
a) there will be a forfeiture of the shares, if certain circumstances arise or do not arise;
b) as a result of the forfeiture, the employee will cease to have any beneficial interest in the shares; and
c) The employee is not entitled to receive compensation for the as a result of the forfeiture in excess of the amount they paid for the shares (if any); and
2) The contract is in place for bona fide commercial reasons and does not form part of a scheme or arrangement for which the main purpose or one of the main purposes is the avoidance of tax.
Where under the terms of the relevant contract or agreement the shares are forfeited then:
1) The employee will be treated, for the tax year in which the shares were acquired, as if he did not acquire the shares; and
2) Such adjustment shall be made by repayment or otherwise as the case may require, on receipt of a claim by the employee.
A forfeitable share can qualify as a restricted share.
How is the income tax, PRSI and USC collected?
Any income tax, PRSI and USC due on awards of restricted stock must be collected by the employer via the PAYE system in the month of the award and remitted with the P30 submission for that month.
What are the taxation implications for the employer?
Any costs associated with establishing and administrating the Scheme and any costs associated with the purchase of shares to satisfy the Restricted Share awards are allowable for corporation tax purposes.
There is no employer PRSI on the value of any shares awarded under a Restricted Share Scheme.
What are the reporting requirements?
The Company: the company, Irish branches and agencies awarding Restricted Shares must complete a return of information (Form RSS1) annually by 31 March following the end of the relevant tax year in which the Restricted Shares were awarded.
They must also include details of the Restricted Shares awarded in their corporation tax return (CT1). Form CT1 must be filed within 9 months of the company’s corporation tax year.
The employee: an employee is required to return details of the receipt of the Restricted Shares and the subsequent disposal of shares on his / her tax return and to pay any capital gains tax due on the disposal of shares.
Are there any implications for pension benefits?
The market value of the shares appropriated under a Restricted Share Scheme can be included when calculating Revenue maximum benefits and the monetary limits for AVCs.
Restricted Share Scheme Administration
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