What is an RSU? Understanding Restricted Stock Units in Ireland

Restricted Stock Units (RSUs) are a popular form of equity compensation offered by employers, particularly in high-paying industries such as technology, finance, and healthcare. For high-earning professionals, executives, and business owners in Ireland, understanding how RSUs work and their tax implications is crucial for effective financial planning. This guide provides a detailed explanation of what RSUs are, how they are taxed in Ireland, and why seeking expert financial advice can help you maximise their benefits.

What Are Restricted Stock Units (RSUs)?

RSUs are a grant or promise made by your employer to provide you with either shares in the company or the cash equivalent of those shares after a specified vesting period. Unlike traditional stock options, RSUs do not require you to purchase the shares. Instead, they are transferred to you once certain conditions are met.

Key Features of RSUs:

• Vesting Conditions: typically vest based on time (e.g., staying with the company for a set number of years), individual performance, or corporate goals.
• Ownership: You do not own the shares until they vest. Once vested, you can choose to retain or sell them.
• Flexibility: they can be settled in shares or cash, depending on the terms of the grant.

For example, if your employer grants you 1,000 RSUs with a four-year vesting period, you might receive 250 shares each year over four years, provided you meet the vesting conditions.

How Are RSUs Taxed in Ireland?*

The taxation of RSUs in Ireland depends on whether they are share-settled or cash-settled. Both types are subject to Income Tax, Universal Social Charge (USC), and Pay Related Social Insurance (PRSI).

Share-Settled RSUs

When RSUs are settled in shares, you are taxed on the market value of the shares at the time of vesting. Your employer will deduct the applicable taxes through payroll and remit them to the Revenue Commissioners.

Example:

If you receive 600 shares with a market value of €70 per share at vesting, the total taxable amount is €42,000. Assuming a 40% Income Tax rate, 8% USC, and 4.1% PRSI, your total tax liability would be €21,882.**

*Fairstone Ireland does not provide tax, legal, or accounting advice. For more information, please consult a qualified tax professional.

*Source: Revenue.ie

Cash-Settled RSUs

If your RSUs are settled in cash, you are taxed on the cash amount received. Again, your employer will handle the tax deductions through payroll.

Capital Gains Tax (CGT) on RSUs

If you decide to sell your shares after they vest, you may be liable for Capital Gains Tax (CGT). CGT is calculated on the difference between the sale price and the market value of the shares at the time of vesting.

Key Points on CGT:

• CGT Rate: The current CGT rate in Ireland is 33%.
• Annual Exemption: The first €1,270 of capital gains in a tax year is exempt from CGT.
• Reporting: You must report the disposal of shares to Revenue, even if no tax is due.

Vesting of Shares vs. Settlement

Understanding the difference between vesting and settlement is critical:

• Vesting: The date when you gain ownership of the shares or cash equivalent. This is when Income Tax, USC, and PRSI are applied.
• Settlement: The date when the shares or cash are transferred to you. For tax purposes, the earlier of these two dates determines when taxes are due.

For example, if your RSUs vest on 1 January 2025 but are settled on 15 January 2025, the tax liability arises on 1 January 2025.

Tax Implications for Non-Residents*

If you are not tax resident in Ireland at the time of vesting, you will not be liable for Irish tax on the RSUs. However, if you are tax resident in Ireland at the time of vesting, the entire value of the RSUs is subject to Irish tax, regardless of where the services were performed during the vesting period.

Cross-Border Considerations:

• Outbound Employees: If you leave Ireland before your RSUs vest, the awards may escape Irish tax but could be taxable in your new country of residence.
• Inbound Employees: If you move to Ireland and your RSUs vest while you are tax resident here, the entire value of the RSUs may be subject to Irish tax, potentially leading to double taxation.
• Double Taxation Relief: If your RSUs are taxed in another country with which Ireland has a Double Taxation Agreement, you may be eligible for tax relief through payroll rather than waiting to claim a refund at year-end. This helps prevent being taxed twice on the same income.

*Fairstone Ireland does not provide tax, legal, or accounting advice. For more information, please consult a qualified tax professional.

RSU Gains on Payslip

When RSUs vest, they are treated as taxable income and will appear on your payslip, similar to regular earnings. Additionally, if you are entitled to dividend equivalents, which are payments mirroring the dividends paid on company shares, these are considered taxable emoluments and are subject to standard payroll deductions (Income Tax, USC, and PRSI).

Key Points on Payslip Treatment:

• Income Recognition: The value of the vested RSUs (or cash equivalent) is included as employment income.
• Tax Withholding: Your employer deducts Income Tax, USC, and PRSI at the time of vesting.
• Dividend Equivalents: If applicable, these amounts are also included as taxable income and subject to deductions.

For directors receiving RSUs, the taxation rules depend on their residency status and the company structure. In some cases, directorship RSUs may be taxed differently, depending on double taxation agreements and relief provisions.

Why Seek Financial Advice

RSUs can be a valuable component of your financial portfolio, but they come with complex tax implications that require careful planning. Without expert guidance, you could miss opportunities to optimise your wealth. At Fairstone, we provide tailored financial advice to help you navigate the intricacies of RSUs, whether you’re a high-earning professional, a business owner, or a high-net-worth individual. Our team can assist you in integrating RSUs into a comprehensive financial plan ensuring alignment with your long-term goals, such as retirement planning, wealth preservation, or cross-border financial management.

If you have questions about RSUs or need assistance with financial planning, book a no-obligation financial planning consultation with Fairstone today. Our experts are here to provide the guidance you need to make informed decisions and maximise the benefits of your RSUs. Let us help you turn your equity compensation into a powerful tool for achieving financial success.

Let’s Talk

Source:

Revenue.ie

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