The PLC Global Employee Share Plans multi-jurisdictional guide 2012/13 deals with cross-border issues and answers key questions on law and practice relating to employee share plans in 22 jurisdictions. For a full list of contents visit www.practicallaw.com/employeeshareplans-mjg.
This table sets out a summary of the key information concerning the tax treatment of employee share acquisition or purchase plans in 22 jurisdictions covered in the country Q&A section .
Jurisdiction | What are the tax/social security contributions payable on acquisition? | What are the tax/social security contributions payable on vesting? | What are the tax/social security contributions payable on sale? |
Argentina | Typically, the profit (that is, the value of the shares acquired, if at no cost, or difference between fair market value and exercise price if offered at price lower than market value) obtained by an employee is considered salary and subject to income tax and social security contributions. However, bonuses that are not paid regularly or frequently are exempted from social security contributions. Therefore, the exceptional benefits received by an employee arising from a share acquisition plan may be exempted from social security contributions if such criteria are met. | None. | None. |
Australia | Tax implications depend on whether the share plan is a:
| Where the taxing point has been deferred, the employee may be subject to tax on the discount received at the time of vesting. | Capital gains tax is payable on gains derived on the disposal of shares held under an employee share plan. |
Austria | The rate of taxation/contributions are based on the employee's salary and cannot be generalised. An annual allowance of EUR1,460 is free from taxation. | The rate of taxation/contributions are based on the employee's salary and cannot be generalised. An annual allowance of EUR1,460 is free from taxation. | The annual allowance only applies if the employee has held the shares for at least five years. If the employee transfers the shares earlier, the employer must pay taxes on the tax-free amount as soon as it becomes aware of the sale. It must be taxed like base salary. |
Bulgaria | None, unless the plan qualifies as a benefit in kind at this stage. | None, unless the plan qualifies as a benefit in kind at this stage. | Capital gains from on-exchange transactions on an EEA regulated exchange are tax exempt. Income tax obligations otherwise apply, at a flat rate of 10%. A double tax treaty may be applicable. |
Canada | A taxable benefit from employment will arise to the extent the employee is considered to have acquired the shares for a price that is less than their fair market value, and payroll deductions (for income taxes and social security amounts) will generally be required with respect to any such benefit. | No tax or social security contributions are typically payable solely as a result of any applicable vesting conditions having been satisfied. | A disposition of shares generally gives rise to a capital gain (capital loss) to the extent the proceeds (net of brokerage and any disposition costs) exceed the employee's adjusted cost base in the shares. 50% of any capital gains are included in the employee's income and taxed at his applicable marginal rate. 50% of any capital loss can be applied against any capital gains realised by the employee (in prior or subsequent taxation years), subject to the detailed rules set out in the Income Tax Act (Canada). |
China | Tax obligations only arise if employees are awarded shares at no cost or if they purchase the employer's shares at a discounted price. Generally, there are no social security implications for the employer and the employees. | None. | When the employee sells the shares of companies listed in China on the secondary market, they do not pay income tax on the earnings. There are no social security implications. However, if the employee sells the shares of overseas listed companies, the earnings should be subject to individual income tax. |
Denmark | The share award is taxable when, from a tax law perspective, the employee acquires an unconditional right to the award. | Capital gains tax is payable on the difference between the shares' sale price and their market value when they were charged to income tax, either on acquisition or on vesting. The capital gains tax rates for 2012 are:
No social security implications arise. | |
Non-deferred offers. The award is generally considered unconditional when shares are acquired. The shares' market value on acquisition less the purchase price is charged to income tax at a rate of 42% to 56%. No social security implications arise. | Non-deferred offers. None. The share award is generally taxable on grant. | ||
Deferred offers. It is not fully qualified when the employee acquires the unconditional right to the shares. If performance-based vesting conditions and/or time-based vesting conditions with a vesting period of three years or more providing for (part) forfeiture of the share award in the event of termination of employment before the expiry of the vesting period apply, the unconditional right generally arises on vesting, although this must be assessed on a case-by-case basis. If there are no such vesting conditions attached to the shares, this right generally arises on grant. | Deferred offers. If no tax arises on grant, the shares' market value on vesting is charged to income tax. No social security implications arise. | ||
Finland | None. | For employees. Income tax is due on the discount (for directed share issues: only for a discount exceeding 10% of market value). For employers. Withhold income tax. | Employees pay 30% capital gains tax on gain on sale (32% for gain exceeding EUR50,000). |
France | Qualified stock options. A 30% employer social contribution assessed on 25% of the share value at grant. | Qualified stock options. None. | Qualified stock options. The spread:
Capital gain: the difference between the value of the shares on the exercise date and the sale price is taxed at a 19% rate (plus 15.5% social taxes). |
Non-qualified stock options. None. | Non-qualified stock options. The spread is treated as a salary for social security (both portion of the employer and employee social security contributions are due) and tax purposes. | Non-qualified stock options. See above, Qualified stock options: Capital gain. | |
Qualified RSUs. A 30% employer social contribution assessed on 100% of share value at grant. | Qualified RSUs. None. | Qualified RSUs. The vesting gain:
See above, Qualified stock options: Capital gain. | |
Non-qualified RSUs. None. | Non-qualified RSUs. See above, Non qualified stock options. | Non-qualified RSUs. See above, Qualified stock options: Capital gain. | |
Germany | Income tax is charged at progressive rates ranging from 14% to 45% on the difference between the fair market value of the shares and the purchase price at the time of acquisition, plus a 5.5% solidarity surcharge on that tax payment and church tax, if applicable. In addition, social security contributions are payable, which are shared between employer and employee. However, social security contributions are subject to a base cap (different caps for each type of social security contribution) so that in many cases social security contributions are not payable. | None. | Employees pay a flat tax of 25% on the capital gain (difference between the shares' fair market value on purchase and the sale price) plus a 5.5% solidarity surcharge on that tax payment and, if applicable, church tax. Social security contributions are not payable on sale. |
India | There is no tax levied and there are no social security obligations as a result of the grant of ESOPs. | Social security contributions are not due on vesting of share options. Tax is not levied at the time of vesting, irrespective of whether the vesting is time or performance based. | The grant of share options to employees is regarded as an employee benefit and tax is levied at the time of exercise of the option. The difference between the fair market value of the shares at the time of exercise and the exercise price paid is subject to tax at the employee's marginal rate of tax (the maximum marginal rate of tax is 30.9%). Social security contributions do not arise on exercise of options. |
Italy | The difference between the fair value of share and the purchase price (if any) is subject to income tax; and no social security contributions are charged. | None. | The difference between the sale price and the acquisition cost of the shares can trigger a capital gain tax. No social security contributions are charged. |
Japan | For income tax purposes, the grant is generally considered as a non-taxable event. No social security obligations are triggered at any stage of the plan, as any arising benefits are not considered as wages. | For Japanese income tax purposes, any income associated with the share incentive plans is subject to income tax when the income is substantially vested (that is, when a definite and enforceable right to receive payment arises). In the case of a share option plan, the exercise of the share option is a taxable event. Income generated is generally classified as remuneration income and is subject to progressive rates up to 50%. A 2.1% surtax will apply from 1 January 2013. The local employer may have a withholding tax obligation if it is "substantially involved" in the operation of the equity plan (for example, by delivering shares or paying cash through the local payroll). | Any subsequent transfer of shares is a taxable event. The income is classified as capital gain income subject to a separate tax at a flat rate (for example, 20%). A 2.1% surtax will apply for 25 years from 1 January 2013. If the shares are listed shares and certain conditions are met, then a lower tax rate may be available until 31 December 2013. |
Luxembourg | Tax and social security charges arise when the shares are acquired. | No tax or social security charges arise on vesting. | Income tax and social security charges generally arise on the amount of gain perceived from the sale. |
Mexico | No income tax or social security contributions are payable if the shares are subject to forfeiture. | No tax or social security implications on vesting if the shares are subject to forfeiture. Tax arises when the shares are received. At this stage:
| Income tax is payable on the capital gain. The tax base is the difference between the price agreed and the tax cost determined by the acquisition price less any reimbursement of capital. A provisional payment must be withheld or paid directly by the employee of 20% on the total amount of transaction. This can be reduced if the calculation of the tax is audited by a registered public accountant and certain notices are filed. The gain is charged at a progressive rate of up to 30%. |
Russian Federation | Not applicable. | Not applicable. | Personal income tax (13 or 30%) paid by employee. |
South Africa | Tax is generally payable on vesting. | Tax is triggered on vesting. Employers must withhold tax for its employees. Any gain is also subject to Skills Development Levy of 1% and an Unemployment Insurance Fund contribution. | If shares are held as trading stock, gains are taxed on revenue account or alternatively on capital account. |
South Korea | Share grant. Income tax and social security is on the fair market value price of the shares, as the grant is made for no consideration. | None. | Capital gains tax is paid on the difference between the sale price and the greater of either:
In addition, a securities transaction tax also applies, unless the shares acquired are shares of a foreign company. No social security payments are required. |
ESOA share plan. An individual is subject to income tax and social security payments on the spread, calculated as the difference between:
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Spain | The employer must withhold applicable PIT for relevant employee when shares are acquired. If the following are met, employees who acquire free shares or shares below market price are exempt from personal income tax (PIT):
| None. | Tax. None. However, companies must withhold relevant PIT on exercise. If the award is exercised and the price of exercised shares is below market value, excess is considered a benefit-in-kind and subject to PIT. Social security. None, although on exercise social security contributions must be paid on any benefit received. |
Switzerland | Shares are taxed at actual allocation (that is, at acquisition or purchase). The taxable amount is calculated as the difference between the fair market value of the shares and the price at which it is sold to the employee, whereby a discount of 6% per annum is granted for blocked shares (up to ten years with a maximum discount of 44.161%). For social security purposes, the same amount which is subject to income tax is considered to form part of the salary and is therefore subject to social security contributions. | If there are time or performance-based vesting conditions deferring actual allocation of the shares, the employee only receives legal title to the shares when the vesting conditions are met. In this case, income tax and social security contributions are only due when the vesting conditions are met (rather than when the shares are awarded). | Capital gains derived from the sale of employee shares are generally exempt from income tax and social security contributions. |
Turkey | None. | The benefit received (that is, the difference between the shares' price at grant and value at vesting) is subject to withholding tax under the Income Tax Code. Social security contributions are payable until the social security cap is reached (TRY 6,113.40 for 2012). | All capital gains from the disposal of shares are subject to income tax, payable at the tariff set out in Article 103 of the Income Tax Code. No social security contributions are payable. |
United Kingdom | SIPs. None. | SIPs. Generally none if employees withdraw shares 5 years or more from acquisition or award. | SIPs. Shares must be withdrawn from trust before being sold. Tax/social security implications depend on when withdrawal from trust takes place. |
Conditional share award plans. None. | Income tax and social security contributions are payable on acquisition of shares. | CGT is payable. | |
Restricted share acquisition plans. Income tax and social security contributions arise on acquisition unless either:
| Restricted share acquisition plans. None if employee paid full market value on acquisition. Otherwise, lifting of restrictions triggers income tax and social security contributions unless election was made to be taxed on full market value on acquisition. | Restricted share acquisition plans. CGT is payable. | |
United States | §423 employee share purchase plans. None. | §423 employee share purchase plans. None. | §423 employee share purchase plans. If holding requirements met, excess of purchase date FMV over purchase price taxed as ordinary income; remainder taxed as capital gain/loss; no FICA/FUTA. |
Non-qualified share purchase plans. Excess of purchase date fair market value (FMV) over purchase price taxed as ordinary income (however, if award subject to §409A of US Code, taxed in first year award is not subject to substantial risk of forfeiture and additional 20% tax applies); FICA/FUTA apply. | Non-qualified share purchase plans. None. | Non-qualified share purchase plans. Proceeds taxed as capital gain/loss. | |
Restricted share plans. None (unless §83(b) election made, then excess of grant date FMV over consideration paid taxed as ordinary income; FICA/FUTA apply). | Restricted share plans. Unless taxed earlier, excess of vesting date FMV over consideration paid taxed as ordinary income; FICA/FUTA apply. | Restricted share plans. Proceeds taxed as capital gain/loss. | |
Venezuela | None. | None. | None, unless income forms part of the employee's normal salary, in which case income tax is due on the capital gain. |