How to set up a KEEP scheme in Ireland: complete founder’s guide
By Dylan Holland, Founder, OnlineLegalServices.ie
The Key Employee Engagement Programme — KEEP — is the most-undervalued tool in the Irish startup tax toolkit. Of the founders I speak to in any given week, fewer than one in five are using KEEP for option grants — and almost all of them have heard of it. The blocker is not the tax case (which is overwhelming) but the perceived setup complexity. This guide walks through the actual setup process, the documents you need, the common mistakes to avoid, and how to retrofit KEEP onto a company that has been running unapproved options.
Why KEEP exists
Before KEEP was introduced in Finance Act 2017, Irish startups granting share options to employees faced a brutal tax mismatch: employees paid up to 52% income tax, USC, and PRSI on the gain at exercise (often before they had any cash to fund the bill), while shareholders later paid 33% CGT on the same shares at disposal. That double-layered taxation made share-option compensation in Ireland a fraction as effective as in the US, the UK, or Continental Europe — and Irish startups lost engineering talent to firms in those jurisdictions because they could not compete on net equity.
KEEP fixes the mismatch by deferring all tax to disposal and treating the gain as CGT — a 19+ percentage-point swing in net employee return. It is the most generous statutory share-option scheme available to qualifying Irish SMEs, and it has been progressively widened by Finance Acts 2019, 2022, and 2024 in response to lobbying from the Irish startup community.
The setup process — six documents in seven days
A KEEP setup at €395 fixed-fee through OnlineLegalServices.ie produces six documents in this sequence:
- Board resolution adopting scheme rules. The first document the directors sign — formally adopting the KEEP scheme as a company-wide programme.
- Scheme rules. The substantive document — typically 8–12 pages covering qualifying employees, qualifying-company representations, grant procedure, vesting and exercise mechanics, change-of-control, leaver provisions, and Form KEEP1 reporting obligations.
- Shareholder approval (where the constitution requires it). Modern Irish constitutions typically require shareholder approval of any new equity-incentive scheme. We coordinate the shareholder resolution and the supporting circular if needed.
- Per-grant board resolution. A short resolution naming the employee, option count, strike price, vesting schedule, and certifying qualifying-employee status. One per grantee.
- Option agreement. The signed contract between company and employee, referring to the scheme rules and setting out the specific grant terms.
- Annual Form KEEP1 template. Pre-populated for the first reporting year so the company can file with Revenue without engaging additional advisors.
The full setup runs 5–7 business days from instruction. The bottleneck is usually obtaining the company’s most recent share valuation methodology and confirming qualifying-trade status — both of which we coordinate with your accountant.
The qualifying-company test in detail
Three checks. First, size: total balance-sheet assets under €15 million, turnover under €15 million, fewer than 250 employees. Second, trade: the company carries on a qualifying trade — most active trades qualify, but professional-services activities in some narrow categories, financial-services activities, and dealing in land or shares are excluded. Third, independence: the company is not a subsidiary of a non-qualifying parent (typically a publicly-listed company or a non-SME group). Most Irish venture-backed startups satisfy all three; founders should check independence carefully if the company has taken corporate-strategic investment.
The qualifying-employee test in detail
Four checks. First, full-time: at least 30 working hours per week. Second, holding: under 15% of issued ordinary share capital before the grant. Third, term: employed by the qualifying company for the entire vesting period (not the post-vesting holding period — that’s a separate consideration). Fourth, individual limits: total market value of unexercised KEEP options cannot exceed €100,000 per year of assessment, €300,000 per three-year period, and 100% of the employee’s annual emoluments. The 100%-of-emoluments cap is the operative limit for most early-stage hires; the €300,000 absolute cap binds for senior hires at growth-stage companies.
Strike price and valuation methodology
KEEP options must be granted at fair market value. Granting at less than fair market value voids the KEEP treatment and reverts to unapproved options — a costly mistake. Valuation methodologies that Revenue will accept include: most recent priced funding round (within 12 months), discounted cash-flow valuation prepared by a qualified accountant, and asset-based valuation for asset-heavy companies. We coordinate with your accountant on methodology and document the valuation in the per-grant board resolution. Our cap-table legal health check reviews the valuation methodology against any prior rounds and ensures internal consistency.
Vesting, leaver, and change-of-control mechanics
Standard KEEP vesting is four years with a one-year cliff — same as the venture-default for unapproved options. Leaver mechanics distinguish good leaver (death, permanent disability, mutually-agreed departure) from bad leaver (voluntary resignation pre-vesting, dismissal for cause). Good leavers retain vested options to exercise; bad leavers forfeit unvested options. Change of control — sale, merger, IPO — typically vests options in full and exercises into the sale, preserving the CGT treatment.
These provisions need to be drafted into the scheme rules from the outset. Our vesting agreement pack handles vesting outside the KEEP context for founder shares, and the two regimes need to be co-ordinated where founders are also KEEP-grantees.
Retrofitting KEEP onto unapproved options
If your company has been granting unapproved options and you want to switch to KEEP for future grants, the path is straightforward: adopt the KEEP scheme rules from the date of board adoption, and grant new options under the new scheme going forward. Existing unapproved options remain unapproved — you cannot retroactively convert. The decision is whether to continue running both schemes in parallel (administratively heavy) or to vest-and-cancel the unapproved options as part of the transition.
For companies coming up to a priced funding round, the cleanest pattern is: (1) accelerate-vest existing unapproved options into shares pre-round; (2) adopt KEEP post-round; (3) issue all new options under KEEP. Our investment readiness legal pack handles this transition as part of the broader pre-round cleanup.
The annual Form KEEP1 obligation
Every qualifying company must file Form KEEP1 annually with Revenue, listing all KEEP options granted, exercised, lapsed, or forfeited in the period. Filing deadline is 31 March of the following year. Missing the filing once is recoverable (penalty applies but scheme treatment is preserved); missing it three years running is structurally problematic and may invalidate the scheme. Our €395 setup includes a pre-populated Form KEEP1 template for the first reporting year and we are happy to take on the annual filing for clients who prefer to outsource it.
Common mistakes
Five patterns I see repeatedly. First: granting at less than fair market value because the founder thought they were being generous to the employee — voids KEEP treatment. Second: granting to a non-qualifying employee (contractor, under-30-hour part-timer, 15%+ shareholder) and discovering at exercise the option is unapproved. Third: missing the annual Form KEEP1. Fourth: failing to update the scheme rules after Finance Act amendments — the 2019, 2022, and 2024 amendments materially changed the per-individual caps. Fifth: treating KEEP as a substitute for a proper Founder Shareholders Agreement; KEEP is for new option grants to qualifying employees. It does not solve founder-equity-split or leaver-provisions for the founders themselves.
Frequently asked questions
How long does it take to set up a KEEP scheme in Ireland?
A standard KEEP scheme setup with OnlineLegalServices.ie takes 5-7 business days from instruction to signed scheme rules and the first option grant. The bottleneck is usually obtaining the company’s most recent share valuation methodology and confirming qualifying-trade status, both of which we coordinate with your accountant. Companies that already have a recent funding round or a clean cap-table can shorten the timeline; companies coming from unapproved options retrofit may need an extra week to clean up the legacy paperwork.
Can a KEEP scheme include directors?
Yes — full-time directors who do not hold material shareholdings (under 15% of issued ordinary share capital) can be qualifying employees under Section 128F. Founders who hold 30%+ are excluded. This is one of the most-misunderstood aspects of KEEP — many founders assume the scheme is for employees only. Directors who take a salary and work full-time on the qualifying trade are typically eligible, subject to the 15% holding cap.
What happens to KEEP options if the company is acquired?
On a change of control, KEEP options typically vest in full and the employee can exercise immediately into shares that are then sold as part of the acquisition. The CGT-treatment under KEEP is preserved on the gain over the option strike price. Acquisition mechanics need to be drafted into the scheme rules from the outset — boilerplate KEEP rules sometimes leave change-of-control treatment ambiguous, which becomes expensive at exit time.
Can foreign-owned Irish companies use KEEP?
The qualifying company must be Irish-incorporated and carry on its qualifying trade in the State or in the EEA. Foreign ownership of the parent does not, on its own, disqualify the Irish operating subsidiary, provided the Irish company itself meets the size, trade, and independence tests. US-headquartered Irish operating subsidiaries are common KEEP users — typically structured around the Irish operating company, not the US parent.
Does KEEP affect the company’s R&D tax credit?
No — KEEP and the R&D tax credit operate under different parts of the Taxes Consolidation Act and have no direct interaction. KEEP options are not “salary” for R&D credit purposes (R&D credit is computed on R&D wages and qualifying expenditure, not on share-option grants). Founders sometimes worry about double-claiming reliefs; this is not a concern.
Set up your KEEP scheme
If you are an Irish startup founder thinking about issuing options to one or more employees in the next twelve months, set up KEEP first. €395 fixed-fee with us, or book a 30-minute startup-shares advice call if you want to walk through whether your company qualifies before committing. Our standalone KEEP scheme page covers the same ground in a different format.
By Dylan Holland, Founder, OnlineLegalServices.ie / PLUSOLS LIMITED.
Reviewed by a qualified Irish solicitor regulated by the Law Society of Ireland. This article is general legal information for Irish startup founders and is not a substitute for advice on a specific matter. Pricing on linked product pages is current at the date of publication; please refer to the linked page for the live rate.
