Approved Profit Sharing Schemes (APSS)
11 February, 2021
Rewarding your people through profits
A Revenue Approved Profit Sharing Scheme (APSS) represents the most popular approved scheme in Ireland by which employers can remunerate their staff in a tax efficient structure. There are now over 500 schemes approved, primarily in Irish public companies and subsidiaries of multinational companies with Irish operations, not least due to the potential 52% tax or social insurance rate applicable to cash-based remuneration. Furthermore, APSS shares do not attract the 11.05% employer PRSI charge.
What is an APSS scheme?
Approved schemes allow an employer to distribute shares to employees, up to a total value of €12,700 per employee per annum. The typical structure would offer employees a choice of receiving shares free of 40% income tax as an alternative to cash bonuses on which income tax, the USC and full social insurance would be withheld. The company will generally get a tax deduction for the costs incurred. No employer social taxes will apply.
Operation of an APSS scheme
A company with an approved scheme has discretion each year whether to make awards or not. APSS shares will be beneficially owned by individual employees, albeit the trustees must hold the shares in trust for at least three years in order for the income tax exemption to apply.
What employees are eligible for APSS?
All employees and full-time directors with at least three years of service must be eligible. However, the company is free to include employees with less than three years of service. Participation must be permitted on similar terms. This might include an allocation of shares by reference to:
- length of service;
- salary levels;
- an appraisal system accepted by Revenue; or
- other objective criteria
What are the benefits for employers and employees of an APSS?
Benefits for employers
- 11.05% employer PRSI savings;
- Company performance targets can determine quantum of the funds to be allocated in any year;
- Performance based bonus plans can qualify;
- An APSS helps to attract and retain talent; and
- Aligns interests of shareholders, management and employees for an extended period
Benefits for employees
- 40% income tax relief;
- Capital gains tax (CGT) only applies on the sales proceeds in excess of value on appropriation; and
- Motivational effect of owning a stake in the company
What contributions can an employee make to an APSS?
- Salary foregone
Employees can elect to top up an employer's contribution in a tax efficient manner from gross salary, subject to specified limits and the overall cap of €12,700 per annum. Salary foregone must be utilised within the same tax year as the corresponding employer contribution. - Buy-one-get-one-free (BOGOF)
It is also permissible to introduce schemes whereby the company's contribution is dependent on the employee making the initial contribution. Such schemes are often referred to as "Matching Schemes" or "BOGOF".
Corporate reporting obligations
Various straightforward annual tax returns must be filed. 31 March is the earliest filing deadline for the first of these filings.
Our share scheme services
At PwC, we provide a comprehensive range of share scheme services, including:
- Evaluating needs;
- Designing the appropriate scheme;
- Drafting scheme documentation;
- Managing the tax approvals or rulings;
- Managing institutional investor approvals;
- Employee communications and presentations; and
- Tax filing support
*Originally published on 7 December 2018; latest update on 11 February 2021 to reflect current rate of employer PRSI.
