How does an Approved Profit Sharing Scheme (APSS) work in Ireland?

An Approved Profit Sharing Scheme (APSS) is a Revenue-approved arrangement through which employers can allocate company shares to employees in a tax-efficient manner.

How it works:

Under an APSS, the company allocates shares to a trustee, who holds them on behalf of employees. Employees do not have to pay income tax on the shares allocated to them, provided the shares are held in the trust for a minimum period.

Tax treatment:

• Shares allocated by the employer worth up to €12,700 per employee per year are exempt from income tax at the time of allocation (provided the shares are retained by the trustee for at least two years)
• If shares are withdrawn within two years of allocation, the full value is subject to income tax, PRSI, and USC as employment income
• If shares are held for 2–3 years, part of the original value is chargeable
• After three years, no further income tax arises on the original allocated value
• When shares are eventually sold, Capital Gains Tax (CGT) at 33% applies to any gain above the value at the date of release from the trust

Conditions for approval:

• The scheme must be Revenue-approved before shares are allocated
• All employees with 3 or more years of service must be eligible to participate
• Participation must be on the same terms for all eligible employees (the allocation can be proportionate to salary)
• Shares must be ordinary shares in the employing company or parent company

For employers: Employer contributions to the trust are deductible as a business expense. APSS is a popular tool for attracting and retaining employees in listed companies.