In this month’s update: important information from Vietnam, New Zealand, and Malaysia.
State Bank of Vietnam have recently issued “Circular 10”
On June 29, 2016, the State Bank of Vietnam (SBV) issued a circular that came into effect on 13 August 2016.
Circular 10 sets out an alternative approach for obtaining approval for option plans and some ESPP plans set up by overseas companies in Vietnam and in which Vietnamese employees may participate.
Rather than requiring the approval of the SBV (which is still required for RSU plans), it is now theoretically possible for employers to obtain approval for these incentive plans through the local Vietnamese employing company and for employees to purchase shares through the Vietnamese employing company.
Circular 10 sets out the following:
- Definitions of the relevant types of share awards
- The process for registering such plans with the SBV
- The acquisition process including the appointment of a “legal representative” and the requirement that a dedicated bank account is set up (the share incentive programme account) for making remittances in relation to the plan into and out of Vietnam, including dividends
- The requirement for quarterly filings to the SBV (including all shares acquired and sold and all remittances in relation to the plan)
Companies and advisers will need to see how these changes work from a practical perspective over the coming months. It will be interesting to see how the practice for making share awards and option grants in Vietnam may change as a result of Circular 10 and whether this encourages companies to extend share plan participation to their subsidiaries in Vietnam.
Securities laws changes
An exclusion for offers made under employee share schemes is available under Schedule 1 of the Financial Markets Conduct Act 2013 (Schedule 1 Exclusion). In addition, the Financial Markets Conduct Employee Share Purchase Schemes Exemption Notice 2016 (2016 Exemption) came into force on 8 August 2016. The 2016 Exemption extends the application of the Schedule 1 Exclusion and:
- Covers offers of financial products to trusts and relatives of employees and other eligible investors;
- Covers offers of debt securities (e.g. saving scheme securities) made in connection with the employee share purchase scheme;
- Addresses issues with the operation of the 10% limit on the number of equity securities issued or transferred in a 12 month period.
An eligible investor includes:
- An employee or a director of the issuer (or any of its subsidiaries)
- A person who provides personal services (other than as an employee) principally to the issuer (or any of its subsidiaries)
- Relative of such a person;
- Trustee of a trust of which a person described above is a beneficiary;
- Company that is that is controlled by a person described above.
Provided the offeror has not previously relied on the Securities Act (Overseas Employee Share Purchase Schemes) Exemption Notice 2002, the offeror can rely on the Schedule 1 Exclusion. If the Schedule 1 Exclusion is not available then the 2016 Exemption may be relied upon.
Securities can be offered concurrently under both the Schedule 1 Exclusion and the 2016 Exemption provided the number of equity securities on offer in New Zealand does not exceed 10% of the total number of equity securities issued or transferred under all the issuer´s employee share purchase schemes.
No filings or registrations are required when offering equity securities under an employee share purchase scheme if the following conditions are met:
- The offer is made as part of the remuneration arrangement or is otherwise made in connection with the employment or engagement of the eligible person;
- Raising funds for the issuer is not the primary purpose of the offer; and
- The total number of equity securities issued or transferred in New Zealand under all of the issuer´s employee share purchase schemes to eligible investors in any 12 month period does not exceed:
- 10% of the voting securities of the issuer as at the start of the 12 month period
- 10% of the equity securities of the issuer that are of the same class as at the start of the 12 month period.
Issuers offering equity securities under both the Schedule 1 Exclusion and the 2016 Exemption must provide the following information to the employee they accept the offer:
- Warning statement (in prescribed form);
- Terms and conditions of the employee share purchase scheme; and
- Copy of the issuer´s latest annual report, financial statements and a copy of the auditor´s report on those financial statements or a notice that states that the investor has the right to receive the issuer´s latest annual report, financial statements and a copy of the auditor´s report (if any) or that these documents can be obtained by electronic means.
2016 Exemption: offers of debt securities are subject to the above. In addition, the employee share purchase scheme must also be offered in a specified overseas jurisdiction and the money paid to acquire the debt securities must be held in a separate bank account.
As of 1 December 2016 issuers will no longer have an obligation to file financial statements with the New Zealand Companies Office.
Employee share purchase schemes – previous regime
Before any securities are offered, various documents outlining the terms of the offer must be provided to employees. These include (i) the current rules of the plan (or a summary of them); (ii) documentation outlining the terms of the offer in New Zealand; (iii) the most recent annual report of the issuer; and (iv) the most recent published financial statements of the issuer. These documents must also be filed with the New Zealand Companies Office before any securities are allotted. Such filings may not be required for offers made only to “eligible persons”. Advice should be taken on whether this exception may apply.
Under the transitional provisions, issuers can choose to rely on the previous regime, or the new exclusion. However, from 1 December 2016 the previous regime can no longer be relied on. Offerors will need to ensure that their employee share purchase schemes are compliant (in particular they will need to prepare a warning statement that is compliant with the legislation).
Companies should continue to review the securities laws sections in New Zealand that have been subject to a number of changes over the last 12 to 18 months
Monthly tax deductions as final tax & e-filing of Form E from 2016 onwards
Mandatory electronic filing of the annual employer’s tax return (Form E) will be introduced with effect from tax assessment year 2016 pursuant to Section 152A of the Income Tax Act 1967. Manual filing using paper forms will no longer be possible.
Together with the implementation of Monthly Tax Deduction (MTD) as Final Tax from December 2014 this change clarifies that the responsibility for ensuring the correct reporting of employment income rests primarily on the employer rather than the employee. The MTD should represent the final position for qualifying taxpayers who elect not to submit an annual individual income tax return. Employers need to ensure that they run an accurate and timely filing process as any errors will affect the employee’s deemed tax assessment. They will also need to ensure that they are operating the correct TP1 procedures for employees.
Following the introduction of these changes the Malaysian Inland Revenue Board (MIRB) will be able to access taxpayers’ consolidated tax information which will enable identification of reporting discrepancies far more effectively and quickly than was previously the case.
Employers will need to ensure that they are ready for this change and have identified and implemented appropriate processes in good time for all categories of employee. They will need to be confident that they can produce robust remuneration data on a timely basis. They will need to be prepared for greater scrutiny by the MIRB and more frequent payroll audits. Overall this will increase the compliance burden on employers.