Approved Profit Sharing Scheme

An Approved Profit Sharing Scheme is a structured reward program that allows employers to offer shares of the company to employees in a tax efficient manner. These schemes must receive formal approval from tax authorities and operate through a trust established by the employer. Employees who meet specific conditions can receive shares without paying Income Tax.

APSS

This abbreviation stands for Approved Profit Sharing Scheme. It refers to a government recognised plan that enables employees to receive company shares as part of their compensation. The scheme is designed to promote employee ownership and long term retention. APSS typically offers tax benefits if the shares are held in trust for a required number of years.

Tax Treatment of APSS Shares

Employees receiving shares under an APSS are subject to payroll deductions for social charges and insurance contributions at the time of share allocation. If the shares are retained in the trust for at least three years, the employee may be exempt from Income Tax. If shares are sold earlier, tax at the standard rate applies on the original share value.

Employer Participation in APSS

Companies implementing an APSS must set up a trust to hold the shares on behalf of participating employees. The employer may also permit employees to use performance bonuses to acquire shares through the scheme. The employer is responsible for deducting applicable taxes and making the appropriate filings.

Employee Eligibility for APSS

To qualify for the tax benefits under an APSS, employees must remain with the employer for a minimum period and leave the shares in the trust for a specified time. Most schemes require a holding period of at least three years to gain full exemption from Income Tax.

Holding Period Requirement

The holding period is the length of time shares must remain in the employer established trust for the employee to benefit from tax exemptions. Typically, two years is the minimum for reduced tax rates, while a full three year retention leads to full Income Tax exemption.

Disposal of Shares Before Three Years

If an employee sells or transfers shares before completing the three year period, Income Tax must be paid on the lower of the original share value or disposal proceeds. The trustee handles the tax remittance to the revenue authority before releasing the shares.

Capital Gains Tax on APSS Shares

Once the three year holding period has passed, employees may dispose of the shares without Income Tax. However, any increase in value since the shares were allocated may be subject to Capital Gains Tax. The original share value at the time of allocation is used as the base cost.

Self Assessment for Additional Liabilities

If tax paid at the time of early share disposal is lower than the actual liability, the employee must report and pay the difference under the self assessment system. Details of the transaction must be included in the annual tax return.