Tax on employee share acquisition or purchase plans

This table is part of the Employee Share Plans Global Guide, which deals with cross-border issues and answers questions on law and practice relating to employee share plans in key jurisdictions. For a full list of contents visit www.practicallaw.com/employeeshareplans-guide.

This table sets out a summary of the key information concerning the tax treatment of employee share acquisition or purchase plans in several jurisdictions covered in the country Q&A section.

Please note that the law stated date for each jurisdiction may differ. Click on each jurisdiction to see full answers and check the law stated date.

Tax on employee share acquisition or purchase plans

Jurisdiction

What are the tax and social security contributions payable on acquisition?

What are the tax and social security contributions payable on vesting?

What are the tax and social security contributions payable on sale?

Argentina ( www.practicallaw.com/0-507-4552)

Tax and social security obligations normally arise when the shares are awarded or acquired. Typically, the profit 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 (section 6, Law No. 24241).

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.

Resident individual: Gains from the sale of unlisted shares are subject to a 15% income tax.

Gains from the sale of shares that are traded through exchange markets duly authorised by the Public Offer Authority (Comisión Nacional de Valores) are exempt.

Non-resident individual: Gains from the sale of shares are subject to income tax, whether the shares are listed or not, to a 13.5% effective income tax withholding rate on the sale price or, alternatively, a 15% rate on the actual capital gain if the seller’s tax cost basis can be duly documented and recognised by the tax authority.

15% income tax on gains of non listed shares. Gains on sale of listed shares are exempt.

 Australia ( www.practicallaw.com/1-513-1482)

Tax is payable on the total amount of the discount, unless the conditions for one of the tax concessions are met (either the A$1,000 tax-free concession or the tax deferral concession).

If the A$1,000 tax-free concession applies, tax is still payable as at acquisition but the first A$1,000 of the discount is tax-free.

Payroll tax payable if the employer is liable and it does not elect to defer.

No tax payable if tax was paid on acquisition.

However, if automatic tax deferral applies, tax is payable on the discount (assuming no ongoing disposal restrictions). But if shares are sold within 30 days of this time, tax is payable as at the sale date.

Payroll tax payable if the employer is liable and it elected not to pay at acquisition.

No tax payable if the sale occurs within 30 days of the employee being taxed under the ESS rules.

Otherwise, CGT payable on the difference between the sale proceeds and the cost base of the shares. 

Brazil ( www.practicallaw.com/9-513-8390)

There is no legal provision on tax and social contributions payable on acquisition. Tax and social security implications will depend on the specific characteristics of the share option plan.

Based on Brazilian case law, if a certain plan is deemed to be part of the participant's compensation, income tax and social security contribution will be levied on the difference between the acquisition price and the market value of the share.

Not applicable.

Income tax on the capital gains arising from the sale (if any).

Bulgaria ( www.practicallaw.com/3-507-4555)

  • Tax exemption for capital gains realised on an EEA regulated market.

  • High possibility of taxation and social security contributions withholding as part of the employment remuneration if the plan is funded by the employer.

Tax and social security liability is possible, but unlikely.

  • Obligation to report capital gains realised on sale of the shares in the tax return for the employees.

  • Tax exemption for capital gains realised on an EEA regulated market.

  • Bulgarian tax rate of 10%.

  • Possible application of a double tax treaty.

China ( www.practicallaw.com/9-507-4557)

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.

An employee who sells the shares of companies listed in China on the secondary market 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 must be subject to individual income tax.

Finland ( www.practicallaw.com/5-502-9883)

 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 (34% for gain exceeding EUR30,000).

France ( www.practicallaw.com/7-503-0017)

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: a 10% employee social contribution plus 15.5% social taxes, or 8% depending on the date of grant of the options. A 30% personal income tax rate for the portion below EUR152,500 and 41% above or personal income tax at marginal rate, depending on the date of grant of the options.

  • Capital gain: the difference between the value of the shares on the exercise date and the sale price is subject to personal income tax at progressive rates, with allowance for holding period of the shares (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 portions 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 restricted stock units (RSUs).

  • Grant made pursuant to an authorisation given before 7 August 2015: a 30% employer social contribution assessed on 100% of share value at grant.

  • Grant made pursuant to an authorisation given after 7 August 2015: the employer social contribution is 20% of the value of the shares at vesting, and is due on vesting.

Qualified RSUs. None.

Qualified RSUs.

  • Grant made pursuant to an authorisation given before 7 August 2015: the vesting gain is subject to:

    • a 10% employee social contribution;

    • 15.5% social taxes (or 8% depending on the date of grant of the awards); and

    • 30% personal income tax or personal income tax at marginal rate, depending on the date of grant of the awards.

  • Grant made pursuant to an authorisation given after 7 August 2015: the employee is subject to:

    • 15.5% social taxes; and

    • personal income tax at progressive rates up to 45%, with possible allowance depending on the holding period of the shares.

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 ( www.practicallaw.com/9-503-3784)

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 upon sale.

 Indonesia

There is no specific regulation on employee share plans. Depending on the scheme, income tax normally only becomes due on the realisation of a profit after sale of the shares.

There is no specific regulation on employee share plans. Depending on the scheme, income tax normally only becomes due on the realisation of a profit after sale of the shares.

There is no specific regulation on employee share plans. Depending on the scheme, income tax normally only becomes due on the realisation of a profit after sale of the shares.

Italy ( www.practicallaw.com/8-422-1225)

The employee is not taxed on grant and no social security contributions are due.

The employee is subject to tax on vesting. Income tax applies at ordinary progressive rates up to 43% (plus regional and municipal surcharge) on the fair market value of the shares acquired at the time of exercise, minus any amounts paid by the employee. The employee must also pay social security contributions unless certain conditions are met.

Capital gains, computed as the sales proceeds minus the "base cost" (usually the fair market value of the shares at the time of vesting), are taxed when shares acquired on vesting are sold.

No social security contributions are payable on sale.

Russian Federation ( www.practicallaw.com/2-513-4908)

Individual income tax:  

Grant of share option plans (SOP), employee share plans (ESP), restricted share (RS) plans, cash-settled restricted share units (RSU): potentially 13% (no tax if they are not deemed as financial instruments under Russian Securities Market Law).

No social security contributions.

Individual income tax:

  • Vesting of SOP, ESPP: no tax (13% tax on exercise).

  • Vesting of RSU: 13% tax on delivery of shares.

  • Vesting of RS: 13% tax.

No social security contributions.

Individual income tax: 13%.

No social security contributions.

Serbia ( www.practicallaw.com/0-636-1774)

Employees:

  • Salary tax (10%).

  • Pension insurance (26%).

  • Health insurance (10.3%).

  • Unemployment insurance (1.5%).

Managers under management agreement:

  • Personal income tax (20%).

  • Pension insurance (26%).

  • Health insurance (10%) if the unemployed is not insured on another basis.

N/A

Personal income tax on capital gains at the rate of 15%.

South Africa

Typically, where the plan relates to a restricted equity instrument as defined, there are no tax consequences on acquisition.

Where the instrument is a restricted equity instrument, income tax is payable by the employee, but withheld by the employer, on the difference between the price paid for the instrument and its market value on vesting. 

The following social taxes are payable by the employer company on the taxable value at the time of the taxable event:

  • The skills development levy at a rate of 1% of the gain, which must be remitted together with the income tax withholdings to the tax authorities by the seventh day of the month following the month in which the gain is realised.

  • The unemployment insurance fund contributions at 1% of remuneration up to ZAR178,464 per annum, which must also be remitted together with the income tax withholdings to the tax authorities by the seventh day of the month following the month in which the gain is realised.

40% of any gain is included in the taxpayer's income and taxed at the marginal rate, effectively up to 16.4%.

There are no social security contributions payable on sale.

South Korea ( www.practicallaw.com/7-507-4558)

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.

ESOA share plan. An individual is subject to income tax and social security payments on the spread, calculated as the difference between:

  • The exercise price for the shares.

  • The lesser of:

    • 70% of the fair market value price of the share on the exercise date; and

    • the par value of the shares.

 None.

Capital gains tax is paid on the difference between the sale price and the greater of:

  • 70% of the fair market value price when the share was acquired.

  • The actual purchase price (or, the fair market value at the time of grant, in case of share grant).

  • In addition, a securities transaction tax also applies, unless the shares acquired are shares of a foreign company.

    No social security payments are required.

Spain ( www.practicallaw.com/5-514-0149)

None if there is no gain on acquisition or grant of options.

On share awards with no vesting conditions, or on the exercise of an option, there are tax and social security contributions due on the value of the gain. Gains up to EUR12,000 are exempt and a 30% reduction applies to the value in excess of EUR12,000.

There are no contributions payable on vesting within share option plans but there will be with phantom share plans and restricted share plans.

The employee's profit will be liable for capital gain tax.

Switzerland ( www.practicallaw.com/8-502-9891)

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

No taxable event at the acquisition of option.

  • Taxable event in case shares are delivered

  • Taxable event when the option is exercised.

  • No social security or similar social tax contributions should apply as long as the local employer is not involved with the programme.

  • Capital gains at the disposal of shares.

  • Only Turkish sourced income is taxable for non-resident employees.

UK (England and Wales) ( www.practicallaw.com/1-503-1411)

Share incentive plans (SIPs). None.

SIPs. Generally none if employees withdraw shares five 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.

Conditional share award plans. Income tax and social security contributions are payable on acquisition of shares.

Conditional share award plans. Capital gains tax (CGT) is payable.

Restricted share acquisition plans. Income tax and social security contributions arise on acquisition unless either:

  • The employee pays full market value for shares.

  • Shares are forfeitable for less than five years.

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 ( www.practicallaw.com/4-503-3871)

Employee share purchase plans.

  • Tax-qualified. None.

  • Non-qualified. Difference between the fair market value (FMV) of the shares on the purchase date and the amount paid recognised as ordinary income.

Employee share purchase plans. None.

Employee share purchase plans.

  • Tax-qualified. On qualifying disposition (holding requirements met), ordinary income recognised on the difference between FMV and purchase price, or 15% of the FMV when those shares acquired. Any additional gain is long-term capital gain. On disqualifying disposition, ordinary income recognised on the FMV of the purchased shares on the purchase date minus purchase price. Gain or loss recognised on disposition will be capital gain or loss. If shares held for more than one year since purchase, gain or loss will be long term.

  • Non-tax-qualified. Gains treated as capital gain or loss and long-term or short-term depending on whether the shares are held for more than one year.

Restricted share plans. If any portion of the shares are vested at grant, then income recognised on the difference between the amount paid for the stock and its FMV on the grant date. The recipient can elect to accelerate the calculation and payment of tax to the date on which stock received.

Restricted share plans. The same as for when shares are vested on grant.

Restricted share plans. Sale or disposition treated as capital gain or loss and as short- or long-term depending on whether the shares are held for more than one year.

 
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