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‘KEEP’ – Key Employee Engagement Programme

Tuesday, November 7, 2017

Executive Summary

Key Employee Engagement Programme “KEEP” was one of the headline announcements of Budget 2018. The scheme is an incentive to support SMEs with growth potential in the recruitment and retention of “key” employees. This is a welcome introduction following heavy lobbying from industry and both the Law Society and the Irish Tax Institute. However while the introduction of the scheme is welcome it is likely that in light of the rules and criteria governing the scheme it will have less wider application than entrepreneurs or their advisers had hoped.

The rationale underpinning KEEP is the need for Irish SMEs to become more competitive and to help attract and retain key employees by allowing them to participate in the growth of value in a company in a tax efficient way. This is especially as smaller or younger companies with growth potential may not have the cash resources available to offer comparable salary packages to large, established businesses.

The big difference with the proposed scheme to existing tax rules is that upon the exercise of an option by an employee there is no tax liability.  The tax liability is deferred until there is a liquidity event and at that time the tax is at the lower Capital Gains Tax (“CGT”) rate and not subject to income tax, PRSI and USC at the date of exercise (which is currently the case for non- Revenue approved standard employee share option plans or “ESOPs”). Historically, this has presented real practical difficulties for both companies and employees as: (i) in order to assess any potential tax liability, a company would have to undertake a valuation exercise which can be expensive; and (ii) it can leave an employee with a tax liability with no cash to meet it, despite the fact that the purpose of the option plan was to incentivise and retain key talent. KEEP tries to address these types of issues.

The Finance Bill 2017 published on 19 October 2017 outlines the key criteria to the new rules and these are considered further below.

Qualifying Conditions of KEEP

The company offering the shares must satisfy the following conditions in order to be a “qualifying company”:

  • It must be incorporated in Ireland or in an EEA state and resident in Ireland or resident in an EEA state and carrying on business in the State through a branch or agency;
  • It must carry on a trade on a commercial basis (subject to the excluded activities listed below);
  • It must either be unquoted or quoted on the Enterprise Securities Market for a period of at least 12 months beginning on the date that the share option is granted and ending on the date the option is exercised;
  • It must be an SME at the date of grant of the qualifying share option– i.e. have 250 or fewer employees, an annual turnover that does not exceed €50m and a Balance Sheet that does not exceed €43m;
  • The 100% direct holding company of such a qualifying company can also avail of the scheme.

Similar exclusions to those which apply to the Employment Investment Incentive Scheme (“EIIS”) are mirrored in the provisions of the Finance Bill for KEEP which excludes the following activities:

  • adventures or concerns in the nature of trade (which are understood to be “once-off or speculative transactions” on the basis of Revenue Guidance on the EII Scheme), for example an SPV set up for a sole transaction;
  • dealing in commodities or futures in shares, securities or other financial assets;
  • financial activities;
  • professional services companies (e.g. medical, dental, accounting etc.);
  • dealing in or developing land;
  • building and construction;
  • forestry; and
  • operations carried out in the coal industry or in the steel and shipbuilding sectors.

In addition, the company cannot have issued but unexercised share options exceeding a market value of €3m under the KEEP scheme at the date of grant of the qualifying share option. This is somewhat aligned with the UK equivalent scheme (the Enterprise Management Incentive) which provides that employees can have options with a market value of up to £250,000 per employee and employers can grant options with a maximum total market value of £3m.

The individuals who qualify for KEEP include:

  • full-time employees and full-time directors of the qualifying company who work at least 30 hours per week for the company;
  • the employment must be capable of lasting at least 12 months from the date the share option is granted; and
  • the individual must not hold more than 15% of the shares in the qualifying company to avail of the scheme.

To qualify for CGT treatment under the KEEP scheme, the share option:

  • must be over ordinary shares carrying no future preferential rights;
  • cannot be granted at less than market value of that class of shares in the company on the date of grant. The market value is the price which the shares might reasonably be expected to fetch on a sale in the open market. In addition, a written contract must be put in place detailing the number, description, option price and the period during which the share options may be exercised;
  • that is granted to any individual employee cannot be valued at more than €100,000 in any tax year, €250,000 in any 3 consecutive tax years or 50% of the annual emoluments of that individual for a tax year. Share options must be held for a minimum period of one year and exercised within ten years of grant to avail of this scheme. As short term options must generally be exercised within seven years from the date it is grant, KEEP allows for a little more flexibility in this regard.

The new rules for KEEP will be available for share options granted between 1/1/18 and 31/12/2023.


A company will not be eligible for KEEP if certain compliance obligations are not met.

A qualifying company must deliver the details of qualifying share options to Revenue by 31 March of the year after the year in which the share option was granted. Revenue can require a qualifying company to furnish them with such information as Revenue may reasonably require regarding the relief availed of.

The information is gathered with a view to Revenue publishing details on all qualifying companies such as the name, address, the general activities of the qualifying company and, most notably, the amount of the tax advantage granted under the scheme.

Failure to comply with these reporting obligations will result in the company no longer qualifying for KEEP. This is somewhat draconian, as ultimately it is the employee who will be left with the tax consequences where share options are granted which no longer qualify for the KEEP by virtue of non-compliance.


While KEEP is a welcome introduction, the conditions attaching to the scheme as outlined in the current draft of the Finance Bill are more restrictive than practitioners, companies or employees would have hoped for and this is likely to lead to a smaller take up of the scheme than would otherwise be the case.

For example, the current draft of the legislation requires the qualifying individual to “devote substantially the whole of his or her time to the service of the company” and must work a minimum 30 hours per week. While this mirrors a similar requirement in the EII scheme rules, this is an onerous condition and may result in a number of employees or consultants being closed out of the scheme. Many start-ups rely on input from various people in the early stages of development without the resources to pay a salary. Share options are a natural way of incentivising such key people and helping to create employment and wealth in the future. Unfortunately, under the current proposals for KEEP, the practical reality is that most of these people would not fall within the “qualifying individual” definition.

The effective valuation cap of €3m on options under KEEP is problematic, as mentioned above.  When one considers that an option pool is typically allocated at a range of 10%-15% of a company’s total share capital, it would effectively mean that KEEP would not work for companies with valuations in excess of €30m – therefore rendering the scheme unworkable in the long term for high growth / highly valued technology companies.

In light of the extent of excluded activities, it is unfortunate that many sectors will not be in a position to avail of KEEP. Pharmaceutical and engineering professional services were excluded in the original draft of the Finance Bill, however it is interesting to note that these exclusions have been removed in later drafts published.

The Finance Bill also contains provisions which will permit Revenue to publish information on share options which qualify for KEEP including the amount of the tax advantage gained by availing of KEEP. The general provisions on confidentiality of taxpayer information will not preclude Revenue from publishing these details. This, understandably, may act as a deterrent to companies which do not want commercially sensitive information on share prices being publicly available and the penal result of failure to comply.

It is also unhelpful that the scheme will only apply to options granted post 1/1/18. In our view it would be far more helpful for the SME sector if the scheme also applied to options granted prior to this date and exercised after 1/1/18.

On the whole, while KEEP is a welcome addition it is unlikely to make a significant change to the marketplace especially in light of the limits in the draft Finance Bill.


Please contact Gavin McGuire, Eoghan Doyle or Anna Crowley for more information or any queries you may have.


The information contained in this article is based on the interpretation of the relevant tax law, tax practice and published statements of the Minister for Finance. As in all matters involving interpretation of law and practice, there can be no guarantee that the Revenue Authority or Court will necessary agree to an interpretation. In addition the changes proposed in the Budget are subject to the passing of the Finance Bill through the houses of the Oireachtas and the passing of all necessary supporting legislation.  The views expressed in this document are based on the firm’s interpretation of the Minister’s statement, current law and practice and may change at any time hereafter.


Eoghan Doyle