In competitive sectors such as technology, life sciences, fintech, and advanced manufacturing, attracting and retaining executive talent is a constant strategic priority. For scaling SMEs and indigenous Irish enterprises, competing against global multinationals with deep cash reserves requires offering meaningful equity upside.

However, standard unapproved share option schemes in Ireland create severe upfront tax friction. Exercising a standard option subjects the employee to Income Tax, Universal Social Charge (USC), and Pay Related Social Insurance (PRSI) upfront at combined marginal rates of up to 52% on the paper gain—long before the underlying shares can ever be sold for cash.

To solve this liquidity trap, Section 128F of the Taxes Consolidation Act 1997 (TCA) establishes the Key Employee Engagement Programme (KEEP). As highlighted on CitizensInformation.ie and official Revenue.ie tax portals, KEEP eliminates all Income Tax, USC, and PRSI at both grant and exercise. Instead, taxation is deferred entirely to the ultimate share disposal under Capital Gains Tax (CGT) at 33% (or 10% if Revised Entrepreneur Relief applies).

At Intax.ie, we guide growing corporate entities through the technical parameters of KEEP to design compliant, high-retention equity plans that protect both corporate balance sheets and executive wealth.

1. The KEEP Advantage: Eliminating Upfront Exercise Taxes

The primary power of KEEP lies in transforming a high-friction income tax event into a deferred capital gains event upon ultimate share disposal:

• Unapproved Options: Income Tax (up to 40%), USC (up to 8%), and Employee PRSI (4%) apply to the difference between the market value and the exercise price at the date of exercise. Employers must also account for Employer PRSI unless specific exemptions apply.

• KEEP Options: As confirmed by Revenue Tax & Duty Manual (TDM) Part 05-05-35, there is zero Income Tax, zero USC, and zero PRSI at grant and exercise. Tax applies only when the shares are sold, where the chargeable gain (sales proceeds minus original exercise cost) is assessed under CGT.

EQUITY SCHEME TAXATION COMPARISON
Feature	Unapproved Options	KEEP Option Scheme
Tax Event at Grant	None (Short)	None
Tax Event at Exercise	Up to 52% IT/USC/PRSI| NONE	NONE
Employer PRSI Overhead	Up to 11.15%	Exempt (0%)
Tax Event at Ultimate Sale	CGT on post-exercise growth	CGT (33% or 10%) on  total gain

2. Company and Employee Qualification Parameters

Revenue enforces strict statutory boundaries under Revenue TDM Part 05-05-35 to ensure KEEP is used exclusively by genuine, scaling trading enterprises:

Company Eligibility Criteria

1. Unquoted SME Status: The enterprise must be an unquoted micro, small, or medium enterprise employing fewer than 250 persons with annual turnover not exceeding €50 million or balance sheet total not exceeding €43 million.
2. Qualifying Trade Mandate: The company must carry on a qualifying trade. Excluded sectors include financial services, real estate development, legal/accounting professional services, and holding entities (unless managing a qualifying 51% trading group).
3. Statutory Availability Window: Under current Finance Act rules, KEEP options can be granted for qualifying share options awarded up to January 1, 2029.

Employee and Option Parameters

1. Working Time Commitment: Options must be granted to employees or directors working at least 20 hours per week for the qualifying company or group.
2. Material Interest Ceiling: The individual cannot hold a material interest of more than 15% of the ordinary share capital or voting rights in the company or holding group.
3. The Holding Window: Options cannot be exercised within the first 12 months of the grant date and must be exercised within 10 years.
4. Monetary Ceilings: The market value of unexercised KEEP options granted to a single employee cannot exceed €100,000 in any single tax year, €300,000 in aggregate, or 100% of the employee’s annual emoluments.

3. Valuation Mechanics and Revenue Reporting Rules

The central technical hurdle when implementing KEEP is establishing the open market value of the underlying ordinary shares at the grant date.

• Market Value Standard: Under Section 128F TCA, option exercise prices must not be less than the open market value of an equivalent share on the grant date.

• Revenue Valuation Guidelines: Companies must establish a formal share valuation methodology (e.g., discounted cash flow, net asset value, or recent arm’s-length funding round metrics) prior to executing option agreements.

• Form KEEP1 Filing via ROS: Employers must submit an annual digital return (Form KEEP1) via the Revenue Online Service (ROS) on or before March 31 following the relevant tax year. This return logs all option grants, exercises, assignments, and cancellations. Failing to file Form KEEP1 on time revokes the KEEP tax exemption for those option holders.

To explore how company valuations and digital ledger data interact with corporate tax compliance, read our guide to Mastering VAT in Ireland’s Digital Economy.

The Intax.ie Verdict: Structure Shares Before Granting

KEEP is an exceptional talent retention tool, but its execution requires technical precision. Granting options with an unverified share valuation or missing the March 31 Form KEEP1 ROS deadline will instantly convert your employee incentives into taxable Schedule E income liabilities.

For a broader perspective on how corporate tax structures support scaling firms, read our guide on Ireland’s 12.5% vs. 15% Corporation Tax landscape.

Is your company designing an executive equity scheme or tech talent retention package? Do not allow valuation errors or reporting oversights to create an unbudgeted tax burden for your team. Contact the Intax.ie team today to structure your KEEP option framework with complete precision.