Global Regulatory and Tax Update: February 2018

Welcome to 2018! This month’s update is jam-packed with extensive updates for global share plan managers. Don’t miss information on France, the US and the UK. As ever, don’t hesitate to contact the experts at Shareworks Global Compliance for clarification or assistance on any information presented here.

  Croatia: Tax changes as per 2018

As per 1 January 2018 the currently applicable flat income tax rate of 24% changed into tax bands as follows:

  • Up to HRK 210,000: 24%
  • From HRK 210,000: 36%

Furthermore, the social security cap for employees has been increased to HRL 48,120, which means the social security contributions of 20% do not apply on any income exceeding this threshold.

  Czech Republic: Increase of assessment base for social security purposes

As per 1 January 2018, the assessment base for social security purposes is 48 times the monthly average salary, which corresponds to CZK 1,438,992. Up to this threshold the social security contribution rate is 6.5% and 4.5% thereafter.

  Denmark: 2019 tax incentives for employees announced

On 13 November the introduction of incentives for employees was announced, which is expected to apply from 1 January 2019. Following measures are included:
increase in the employee stock-based compensation limit from 10% to 20% of the salary
introduction of an employee stock-based compensation scheme for start-up companies, which will be 50% of the salary, provided that at least 80% of the employees are allowed to participate.

Shareworks Global Compliance  Comment

This is a welcome change for companies with employee share plans schemes in Denmark. We will monitor the situation and keep you up to date.

  France: Major tax reform implemented as per 1 January 2018

Major changes have been made to the French tax regime —  from income tax to social security. Significant changes have also been made to the tax favorable regime.

Income tax bands

Although the maximum income tax rate remains 45%, there have been changes to the relevant income tax bands.

Tax on sale and dividends

On sale of the shares the gain is taxed at a rate of 12.8% plus CSG/CRDS at 17.2%. Dividends are taxed at a rate of 12.8% plus CSG/CRDS at 17.2% on their gross amount.

Wealth tax

As per 2018 Wealth tax is only applicable to property only as well as on the portion of the value of 10% or more participation in companies holding directly or indirectly taxable properties.

Employee social security rates for non-qualified plans

  • Uncapped social tax of 10.1%: composed of 0.4% Old-age Insurance, 9.2% CSG and 0.5% CRDS
  • Capped social contributions: 6.9% capped at EUR 39,732 year and 0.95% capped at EUR 158,928 year
  • Additional capped social contributions (additional pension) for executives: 3.9% capped at EUR 39,732 per year, 8.7% for salaries between EUR 39,732 and EUR 158,928 per year, .024% capped at EUR 158,928, 1.03% capped at EUR 317,856
  • Additional capped social contributions (additional pension) for non-executives: 3.9% capped at EUR 39,732, 9% for salaries between EUR 39,732 and EUR 119,196.

Local company social security rates for non-qualified plans

Non-qualified plans are subject to normal employer social contributions on salaried income at rates up to 45%.

Tax favorable regime for stock options

Income tax: The acquisition gain (the difference between the FMV exercise and the strike price) is subject to income tax at rates of up to 45% at the time of sale.

Employee social security: Qualified options are subject to a specific 10% social contribution and a 9.7% CSG / CRDS contribution on the acquisition gain. These two contributions are due upon sale of shares.

Employer social security: Qualified options are subject to a specific 30% social contribution due during the month following the award.

Tax favorable regime for restricted stock unit plans

Employee social security
  • Qualified shares since 1 January 2018: The acquisition gain (the FMV at the vesting date) is subject to 17.2% (CSG / CRDS) social taxes at the time of sale if the annual threshold exceeds EUR 300,000. If this threshold exceeded, the acquisition gain is subject to 10% specific contribution and to 9.7% CSG/CRDS social taxes on the acquisition gain at the time on sale.
  • Qualified shares between 31 December 2016 and 31 December 2017: The acquisition gain is subject to 15.5% (CSG / CRDS) social taxes at the time of sale if the annual threshold exceeds EUR 300,000. If this threshold exceeded, the acquisition gain is subject to 10% social contribution and a 8% social taxes on the acquisition gain at the time on sale.
  • Qualified shares granted after 8 August 2015 and before 31 December 2016 are subject to 15.5% (CSG / CRDS) social taxes at sale.
Employer social security
  • Qualified shares since 1 January 2018 are subject to a 20% social contribution on the market value of the shares at vesting.
  • Qualified shares between 31 December 2016 and 31 December 2017 are subject to a 30% social contribution on the market value of the shares at vesting.
  • Qualified shares granted after 8 August 2015 and before 31 December 2016 are subject to employer social contribution of 20% on the market value of the shares at vesting.
Income tax rate
  • Qualified shares since 1 January 2018:

The acquisition gain (the FMV at the vesting date) is subject to income tax at rates of up to 45% at the time of sale, with a reduction of the taxable basis of 50% if the annual threshold exceeds EUR 300,000. If this threshold exceeded, the acquisition gain is subject to income tax at rates of up to 45% at the time of sale.

  • Qualified shares between 31 December 2016 and 31 December 2017:

The acquisition gain is subject to income tax at rates of up to 45% at the time of sale, with a potential reduction of the taxable basis of 50% or 65% if the annual threshold exceeds EUR 300,000. If this threshold exceeded, the acquisition gain is subject to income tax at rates of up to 45% at the time of sale.

  • Qualified shares granted after 8 August 2015 and before 31 December 2016:

The acquisition gain is subject to income tax at rates of up to 45% at the time of sale, with a potential reduction of the taxable basis of 50% or 65%.

 

Shareworks Global Compliance Comment

While the French qualified rules have changed (again) tax plans continue to be popular in France and companies, as well as and Shareworks Global Compliance, will need to continue to monitor any changes going forward.

 

  Portugal: Income tax change announced

The individual income tax rates and brackets for the tax year 2018 will include two more tax brackets, including also:

EUR 7,901 – EUR 10,700: 23%

EUR 20,261 – EUR 25,000: 35%

 

  United Kingdom

United Kingdom: Implementation of proposed changes to SAYE

In November 2017, the UK chancellor announced changes to the tax advantaged Save as You Earn (SAYE) scheme, which will increase the contributions break under SAYE from 6 months to 12 months for participants on maternity and parental leave. The extended break has been welcomed as a positive change, however, there is growing support for this contribution break to be extended across all employees, and consultation continues with the HMT and HMRC on the terms of implementation. There is a recognition that due to other important changes required under Mifid II and GDPR that the initial April 2018 implementation timing may prove a challenge and we may expect a slightly later implementation in 2018, of which we will of course, keep you updated.

Draft for Scotland budget 2018-19 announced

The Scottish Government published on 14 December 2017 the following proposals for income tax rates and bands in 2018/19 in the Draft Scottish Budget. Two new tax brackets are created as follows:

  • 19% for income between GBP 11,850 and GBP 13,850
  • 21% intermediate rate for income between GBP 24,001 and GBP 44,243

Furthermore, the higher rates are increased by one percentage point to 41% and 46% respectively.

Shareworks Global Compliance Comment

Companies with Scottish subsidiaries should bear in mind that the income tax brackets for Scottish employees do not follow the income tax brackets for the remaining United Kingdom.

  USA: Performance-based compensation now subject to $1 million limit under IRC 162(m)

IRC 162(m) imposes a $1 million limit on publicly-traded company deductions for most compensation payments to its “covered employees.”  Performance-based compensation has previously been exempt from this $1 million limit.

On or after January 1, 2018 § 162(m) this type of compensation will be subject to the $1 million limit.   Old rules will apply to written performance-based compensation contracts effective on or before November 2, 2017.

The definition of “covered employees” has expanded to include the CFO.  Any executive who has ever been the CEO, CFO or one of the three highest compensated officers in any fiscal year beginning after December 31, 2016 will always be a “covered employee.”

UPCOMING FILING AND REPORTING

  Malaysia: Annual reporting of equity awards in Malaysia

January 31, 2018

Affects: Local company

The deadline for annual reporting in respect of equity awards granted to Malaysian employees is approaching. Companies that granted such equity awards to employees in Malaysia must report any stock option exercises, RSU vesting, and/or purchases under an ESPP that took place during the previous calendar year to the Malaysian Inland Revenue Board on Appendix C of the Form BT/MSSP/2012 and on the statement of remuneration (EA form) which is issued to employees.

The due date for filing is January, 31 following the end of the tax year. Form Appendix C of the Form BT/MSSP/2012 is available on the website of the Malaysian Inland Revenue Board.

Our collaborating law firm in Malaysia (Loh Chow Tet & Associates) is happy to assist, should you need any support with this.

  Taiwan: Tax withholding statement

January 31, 2018

Affects: Local company

Taiwan employers must submit to the tax authorities by January 31 a non-withholding statement that includes the name, address, national ID number of each employee with awards that vested, were exercised or purchased under an employee purchase plan in the previous calendar year.  In addition, the Taiwan employer must also issue to the non-withholding statement to employees by February 10.

Our collaborating law firm in Taiwan (Huang & Partners) is happy to assist, should you need any support with this.

  Germany: Wage tax certificate

February 28, 2018

Affects: Local company

German employers must issue a wage tax certificate (“Lohnsteuerbescheinigung”) containing information about the calendar year income, as well as information on social security contributions. The wage tax certificate which should inlcude employee benefits must be sent electronically on an official form to the tax authority at which the employer is registered and a copy must also be provided to the employee. The deadline for filing is the last day in February after the end of the previous tax year (December, 31).

Our collaborating law firm in Germany (Haver & Mailaender ) is happy to assist, should you need any support with this.

  Singapore: Filing for former or posted employees

March 1, 2018

Affects: Local company

The local company will need to file a report with the Singapore Inland Revenue Authority (IRAS) in respect of Singapore permanent resident employees who have ceased employment or are posted overseas, and derived gains from the vesting, exercise, assignment, release or acquisition of any rights derived under any employee stock option plan (ESOP) or employee share ownership plan (ESOW) that are taxable in Singapore.

The due date for the filing is March, 1 following the end of the tax year.

Our collaborating law firm in Singapore (Low Yeap Toh & Goon) is happy to assist, should you need any support with this.

  Japan

Foreign asset reporting

March 15, 2018

Affects: Employee

Individuals who are permanent residents for tax purposes in Japan (whether they are tax payers or not) are required to file a report when the total value of their foreign assets exceeds JPY 50 million (approximately USD 500,000) as at December, 31 of any year. This includes foreign nationals who are currently resident in and/or have had a domicile in Japan for more than 5 years in the preceding 10 years or those who are currently tax residents. Foreign assets include any assets held by a Japanese resident located outside of Japan that have an economic value even if they have been awarded or acquired outside of Japan. This includes vested but unexercised options. Unvested awards do not need to be included in the report.

This filing should be effected using a specific form which differs from the income tax return and is required even if no individual income tax return is made. The due date is March, 15 (or the next business day) for assets held at December, 31 of the previous year.

Our collaborating law firm in Japan (Anderson Mori & Tomotsune) is happy to assist, should you need any support with this.

Equity reporting

March 31, 2018

Affects: Local company

The deadline for annual reporting in respect of offshore assets for Japanese employers is approaching. Japanese companies that are majority owned by non-Japanese companies and Japanese branch offices of non-Japanese companies must file an annual report to the tax authorities, using Form 9(3), if their employees have cash or equity awards that have vested or been have exercised in the previous tax year.

The due date for filing is 31 March following the end of the tax year. Form 9(3) is available on the website of the Japanese tax authority.

Our collaborating law firm in Japan (Anderson Mori & Tomotsune) is happy to assist, should you need any support with this.

  Ireland: Equity reporting

March 31, 2018

Affects: Local company

The March, 31 deadline for annual reporting in Ireland is approaching.

Companies have to report to the Irish Revenue on Form RSS1 (filed electronically) any unapproved options and other rights to acquire shares that were granted, assigned, released and/or exercised by employees and/or directors during the relevant year.

Separate reporting requirements apply for approved save-as-you-earn plans, approved profit-sharing plans and employee share ownership trusts. The forms are available for download on the Irish Revenue website.

Please note that failure to comply with these mandatory filing obligations will result in a penalty and, in the case of any approved schemes, may result in the withdrawal of Revenue approval for approved schemes.

Our collaborating law firm in Ireland (McCann FitzGerald, Solicitors) is happy to assist, should you need any support with this.

Please note, this is a general guide only and we accept no liability for any loss caused by acting upon or refraining from acting upon the advice contained herein. While we take every care to ensure the accuracy of the information, there may still have been minor changes in these countries (to the tax rates etc.) or changes that we are unaware of at Solium Global Compliance. There may also have been changes before the date of the Solium Global Compliance update or changes which affect your plans due to the specific nature of your share plans. We would recommend that you consult local lawyers before acting on any of the information above.

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