This Update highlights some of the principal new developments applicable to employee stock plans in selected jurisdictions worldwide. If you have any questions about these developments or need any assistance, please do not hesitate to contact one of the Jones Day lawyers listed below.
Developments in Asia
Application of Special Tax Formula for Employees of Lower Tier Subsidiaries Expanded
The State Administration of Taxation in China recently issued Tax Bulletin No. 27, which became effective on May 1, 2011. Bulletin 27 essentially repealed part of Notice No. 461, which was issued in August 2009 and generally provided for special formulas to compute individual income tax on stock options, SARs, and restricted stock awards. Due to the fact that individual income tax returns are filed monthly rather than annually in China, the special formulas were introduced in order to give the beneficial effect of spreading the income earned from such awards (which is subject to taxation at progressive rates) over a calendar year. MORE
New PRC Social Security Law
The new PRC Social Security Law was adopted at the 17th meeting of the Standing Committee of the 11th National People's Congress on October 28, 2010 and came into force on July 1, 2011. In addition to many changes to the current practice, the new law aims to provide a more comprehensive and effective national social security system and includes participation of foreign nationals in the PRC social security system. Specifically, foreigners employed within the People's Republic of China participate in social insurance in accordance with this Law. MORE
Form 7-2 Filing Requirements Amended
Effective April 6, 2011, the Financial Instruments and Exchange Act of Japan was revised to expand the scope of an exemption from the requirement for an issuer to file an SRS (Form 7-2) in connection with a stock option grant. Prior to the effective date, the exemption applied only if the grantees were directors, officers, and employees of the parent company or one of its first-tier subsidiaries. MORE
Tax Treatment of Stock Options Issued by "Specified Multinational Enterprises"
The latest tax reform bill, which was expected to be enacted in the spring of 2011, provides that certain multinational companies—those that make their subsidiary in Japan serve as either a center for their R&D business or their headquarters in Asia that controls their other subsidiaries in Asia—are eligible for special tax treatment. MORE
New Fee for Securities Filings
An information memorandum, which includes the filing of any plan materials in connection with an equity grant to Malaysian employees, is filed with the Malaysian Securities Commission within seven days of distributing the materials to Malaysian employees. Pursuant to Regulation 5(1)(a) of the Capital Markets and Services (Fees) Regulations, 2011, the Malaysian Securities Commission will now assess a filing fee of RM 500 (approximately US$165) for the filing of an information memorandum. However, as long as the underlying plan materials (i.e., equity plan and equity grant terms) do not change, the fee will only be assessed the first time the information memorandum is filed.
New Income Tax Incentive for Returning
On April 12, 2011, the Prime Minister of Malaysia announced that Malaysian professionals working overseas who return to work in Malaysia and who qualify under the Returning Expert Program are eligible for a transitional income tax incentive. MORE
Developments in Europe
Tax Withholding for Mobile Employees on Qualified Stock Options
Effective April 1, 2011, income and social tax withholding is required for cross-border employees with respect to French-sourced income earned from French-qualified stock options. Since gain related to French-qualified stock options are taxable upon sale of the underlying stock, this new requirement may present an administrative challenge to some companies.
Changes to Tax Withholding Announced
On May 10, 2011, the Irish government announced a new Jobs Initiative that provides, among other things, for the abolition of employer PRSI on share-based remuneration, which is retroactively effective as of January 1, 2011. This development should represent a significant savings for foreign companies in Ireland because they will no longer have to pay the 10.75% contribution rate with respect to income earned on equity awards. MORE
Tax Imposed on Manager-Level Employees in "Financial Sector"
The Italian parliament issued Law Decree No. 78, which provides that a new 10% tax would be imposed on dirigenti, or manager-level employees working in the "financial sector," with respect to bonus income or income received upon the exercise of stock options if that income exceeds three times the rate of the manager's fixed salary. MORE
Social Security Tax, Health Insurance Contributions Introduced
Effective January 1, 2011, capital gains in Slovakia are subject to social security charges at progressive rates. Also effective January 1, 2011, worldwide income earned by Slovak tax residents who are subject to the Slovak social security system is subject to health insurance contributions. Specifically, dividends are now subject to health insurance contributions at a rate of 10% on the difference between the dividends received and €3,948.72. In addition, capital gains are subject to a 14% rate on the difference between sales proceeds and the actual acquisition costs connected with the sale. Certain types of income (e.g., income that is subject to withholding tax as well as income from contracts on work outside of an employment arrangement) are not subject to the new health insurance contributions.
Tax Treatment of Equity Awards Harmonized
The Swiss Parliament recently adopted a Federal Act that will harmonize taxation of equity awards across the country and override the cantonal tax system. Generally, the Federal Act provides that stock options will be taxed at exercise and restricted stock will be taxed at grant. Although certain details have not yet been finalized, the Federal Act is slated to become effective on January 1, 2013 with respect to awards granted on and after that date.
Tax Rates Increased
Effective as of April 6, 2011, the main rate of employee National Insurance contributions ("NICs") increased by 1% to 12%, with the additional rate for earnings above the upper earnings limit (£43,888) also increasing by 1% to 2%. The rate of employer NICs also increased by 1% to 13.8%. These increases affect and therefore increase the effective rate of tax for higher paid employees in plans that are not tax favored. MORE
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.