Key Employee Engagement Programme
/kiː ɛmˈplɔɪiː ɛnˈɡeɪdʒmᵊnt ˈproʊɡræm/
KEEP is an Irish tax-advantaged share option scheme helping SMEs attract talent by deferring tax on employee share gains until the point of sale.
KEEP is an Irish tax-advantaged share option scheme helping SMEs attract talent by deferring tax on employee share gains until the point of sale.
The Key Employee Engagement Programme, commonly known as KEEP, is a focused tax incentive designed specifically for small to medium sized enterprises in Ireland. Its primary goal is to help growing companies attract and retain talented staff by allowing them to offer share options with a more favourable tax treatment than standard schemes. For many Irish startups, competing with the high salaries of multinational corporations is a common hurdle, and KEEP provides a structural way to offer employees a stake in the business future success without an immediate tax burden.
Under a standard share option scheme, an employee is typically liable for Income Tax, University Social Charge, and Pay Related Social Insurance at the time they exercise their options. This can create a significant cash flow problem if the shares are not yet liquid. KEEP changes this dynamic by removing the entry tax. Instead, the gains are only taxed at the point when the shares are actually sold, and they are taxed at the capital gains tax rate rather than the much higher income tax rates. This shift not only delays the tax payment but often results in a significantly lower overall tax bill for the employee.
Not every business can implement a KEEP scheme. To qualify, a company must be an unquoted private company limited by shares ltd that is incorporated in Ireland or another EEA state. The company must also be carrying on a qualifying trade. Certain sectors, such as financial services, professional services, and real estate development, are generally excluded from the programme. Additionally, the company must meet the European Commission definition of an SME, which looks at employee numbers and annual turnover or balance sheet totals. These rules ensure the incentive remains targeted at the entrepreneurial sector of the economy.
To participate in KEEP, an employee or director must work at least 20 hours per week for the company. There are also limits on the total value of options that can be granted. The market value of the shares granted to any single employee cannot exceed 100,000 Euro in any one tax year, 300,000 Euro in all tax years, or 50% of the employee annual emoluments. Furthermore, the options must be granted at the market value of the shares on the date of the grant. This ensures that the scheme is used for genuine incentive purposes rather than as a method to circumvent ordinary payroll taxes.
Maintaining a KEEP scheme requires meticulous record keeping. Companies must report the grant, exercise, or release of options to the Revenue Commissioners annually. This is typically handled through the revenue online service. Failure to comply with these reporting requirements can result in the company losing its qualifying status, which would automatically trigger tax liabilities for the participating employees. It is vital that the board of directors ensures that all filings are accurate and submitted before the relevant deadlines to protect the tax benefits of the scheme.
While KEEP is a powerful tool, it exists alongside other Irish tax reliefs like the employment investment incentive. While the latter is primarily focused on attracting external investment, KEEP is strictly an internal tool for human capital management. Some companies may choose to offer different share classes to employees through KEEP, though the legislation requires that the shares be ordinary shares with no preferential rights. Understanding the nuances between these different schemes is essential for a founder when structuring the company long term cap table.
The Irish startup ecosystem is highly competitive, particularly in the technology sector. Using a programme like KEEP allows a founder to align the interests of key employees with the long term growth of the company. It fosters a culture of ownership and rewards the risk that early employees take when joining a young venture. Although the administrative burden of setting up the scheme and obtaining a valuation can be significant, the long term benefits of having a motivated and equity aligned team often outweigh these initial hurdles. Proper consultation with tax advisors is always recommended before launching a KEEP programme to ensure all specific legislative requirements are fully satisfied.
