Employee share ownership has become an increasingly valuable way for Irish limited companies to reward and retain talent.

For incorporated freelancers, contractors, and small business owners, understanding how an Employee Stock Ownership Plan (ESOP) works can unlock meaningful tax efficiencies and long-term benefits.

If you are running a limited company or thinking about incorporating, this guide explains the essentials in simple terms and highlights what you should consider before offering employee equity.

Get expert guidance on share schemes and ESOP tax planning by contacting our team today.

Key takeaways

ESOP-style share schemes are a powerful tool for small Irish companies and incorporated freelancers

They help attract and retain key talent while offering tax advantages through approved schemes like KEEP and APSS

Tax considerations are central, especially around income tax and Capital Gains Tax

Clear planning, valuation, and documentation are essential before granting company shares

Professional tax advice ensures your plan is compliant and aligned with your business goals

What is an ESOP?

An ESOP or Employee Stock Ownership Plan is an employee benefit plan that gives staff the opportunity to acquire company shares. The idea is simple. Employees share in the success of the business through stock options, restricted stock, restricted shares, or other forms of equity.

Although ESOPs originated in the United States, the principles apply in Ireland through various Employee Share Ownership Plans, stock bonus plans, and share option arrangements.

For small Irish companies, ESOP-style structures create a practical way to:

Reward high-performing team members

Attract skilled contractors

Support long-term planning

Create a clear ownership plan as the business grows

How ESOP-style schemes work in Ireland

While Ireland does not have the exact same ESOP framework as the US, it offers a series of approved and unapproved share schemes that work in a similar way.

Common options include:

Approved profit-sharing schemes (APSS)

Employees receive shares via a trust. The shares can be held for several years to reduce Income Tax exposure. This structure appeals to those who want tax efficiency without complexity.

Key employee engagement programme (KEEP)

A popular choice for small companies wanting to issue stock options without heavy tax charges. Tax on gains is generally deferred until shares are sold and is usually subject to Capital Gains Tax instead of Income Tax. The KEEP programme has been extended to December 2028 in the latest budget 2026.

Restricted stock and restricted shares

These are the most common type of share plan in operation in Ireland. Companies can award shares that vest over time. This encourages long-term commitment and reduces initial tax liabilities.

Unapproved share option schemes

Flexible but less tax efficient. Employees pay Income Tax on any gain when exercising company stock options.

Each approach allows employees to build retirement assets, grow wealth alongside the business, and benefit from potential increases in company value.

Tax considerations for Irish small companies

Tax treatment is a critical factor when designing share ownership schemes.

Key points include:

Income tax: Usually applies when an employee exercises options or receives free shares

Capital Gains Tax (CGT): Applies when shares are sold. Ireland’s CGT rate is generally 33 percent, although exemptions may apply

Capital gains taxes vs income tax: KEEP aims to shift tax liabilities from Income Tax to CGT, which is often more favorable.

Trust funds: Some schemes use trustees to hold shares on behalf of employees which can improve tax efficiency and governance

For owner-managed companies, it is essential to review the tax impact on both the company and the individual employee before implementing a scheme.

This is where support from specialists like Tax Return Plus becomes valuable.

Why ESOP-style plans benefit small companies

Small Irish companies face a competitive hiring market. Equity-based remuneration offers a smart alternative to salary increases.

Key advantages

Retention: Equity encourages employees to stay longer and invest in the company’s future.

Motivation: Staff who hold company shares are more engaged and performance focused.

Succession planning: ESOP-style structures can support long-term shifts in ownership without the need for external buyers.

Cost efficiency: Offering equity can reduce cash pressure for early-stage businesses.

Business valuation benefits: A structured equity plan brings clarity to share distribution which contributes positively to company valuation assessments.

One item to be very aware of when issuing equity in a business is to keep an up-to-date register of owners or to have a system that if an employee leaves the company that they have surrender or re-sell the shares back to the business. The reason for this is some companies have raised flags about tracing former employees who owned stock.

Are ESOPs relevant to contractors and freelancers?

Yes. Many Irish contractors trading through limited companies consider offering equity to:

Part-time employees

Key collaborators

Future business partners

Specialist contractors

For micro businesses, the most suitable options tend to be KEEP or simple restricted stock arrangements. These offer flexibility without excessive administration.

Practical steps to set up an ESOP-style plan

Here is a simple, structured approach for small Irish businesses.

Step 1

Clarify your objective. Are you trying to retain staff, reward performance, or plan ownership succession?

Step 2

Decide which type of equity you want to issue. Consider options, restricted stock, and KEEP eligibility.

Step 3

Determine how many shares to allocate. Review the long-term impact on existing ownership.

Step 4

Establish the valuation. Business valuation affects tax calculations and employee understanding.

Step 5

Create clear documentation. This includes vesting schedules, exercise rules, and exit conditions.

Step 6

Seek tax and compliance support. Accurate reporting is essential to avoid penalties or unexpected tax bills.

Tax Return Plus Supports limited company owners with these requirements, helping you stay compliant while keeping the process straightforward.

Contact our friendly team today

If you are ready to make your tax responsibilities lighter and your planning smarter, Tax Return Plus is here to help.

Whether you want support with corporation tax, guidance on employee share ownership plans, or a clear view of your company’s obligations, our specialists can give you practical, reliable advice.

Get in touch today and take the next step towards a more confident, compliant financial future.

A guide to ESOPs in Ireland