In this month’s update: important information from Chile, Greece, Ukraine, Poland, Luxembourg, and more.
Tax changes for stock options
The Chilean government has introduced a number of changes to personal and corporate taxation that will be introduced with effect from January 1, 2017. These include amendments to the taxation of stock options, which were outlined in a recent ruling published by the Chilean Internal Revenue Service (IRS).
The tax treatment of stock options is not currently clear although generally income tax is levied on exercise.
Under the new regime the tax treatment of stock options will be as follows:
- On grant: for options granted on or after January 1, 2017, a tax charge will arise on the date of grant on the “benefit value” minus any payment made by the individual to acquire the option (note that the meaning of “benefit value” has not yet been clarified but it is anticipated that the IRS will issue guidance on this point)
- On exercise: a second tax charge will arise on the increase in value between grant and exercise on the “book value”/”FMV” minus the aggregate of any exercise price paid plus any amount that has previously been taxed on grant (note that the meanings of “book value” and “FMV” have not yet been clarified but are broadly the market value of the underlying shares at the date of exercise)
- On sale: a third tax charge will arise on the sale proceeds minus the sum of the amounts subject to tax already on grant and on exercise
Further guidance is expected from the IRS later in 2016 to clarify some of the details around these proposals.
No changes have been proposed to the taxation of other employee incentives.
The introduction of a tax charge on grant will be unwelcome news for both employers and individuals. Companies will need to consider how this tax charge should be funded and/or review their approach to employee incentives.
Changes in personal taxation
The following changes in personal taxation have been proposed by the Luxembourg government to apply with effect from January 1, 2017:
- Abolition of the 0.5% temporary tax to balance the budget
- Revision of the global tax schedule with additional income tax brackets and rates
- Introduction of new marginal income tax rates of 41% for income over EUR 150,000 per annum and 42% for income over EUR 200,004 per annum
Proposed tax changes
On July 28, 2016 the Korean Ministry of Strategy and Finance (MOSF) published its proposed 2017 tax law revisions. These will be considered by the Korean National Assembly and may ultimately be approved in late December 2016. The proposals include the following:
- An increase in the flat income tax rate that foreign employees may elect instead of progressive income tax rates
- The introduction of a new exit tax with effect from January 1, 2018 for South Korean tax residents who are leaving South Korea permanently in order to prevent offshore tax avoidance.
If these proposals are approved later in 2016, companies will need to consider how to implement and communicate these changes for their expatriates in South Korea.
Changes to the income tax and social security regulations
Under tax changes effective beginning January 1, 2016, individual income will be taxed at progressive rates up to a maximum of 45%, and a special solidarity contribution will be due on income at progressive rates up to a maximum of 10%.
Employee social security has increased from 15.50% to 16% and employer social security has increased from 24.56% to 25.06%.
Additional changes to the tax rate for dividends will also increase to 15% (from 10%) as of January 1, 2017.
New rules for employees on assignment
On June 18, 2016 the Seconded Persons Act came into force, implementing the EU directive on the posting of workers in the framework of the provision of services.
This new legislation imposes a number of new requirements on foreign companies that send expatriates to Poland and introduces penalties for non-compliance (of between PLN 1,000 and PLN 30,000).
The most significant change is the introduction of new processes enabling the Polish Labour Inspectorate to verify whether rules in relation to assigned individuals have been followed, including confirming that the parent company of the Polish entity actually undertakes genuine business activities in its headquarter location and that the assignment is temporary.
Employers will be required to file a declaration with the Labour Inspectorate no later than the date on which the assignment to Poland starts and to identify a “contact person” for the Labour Inspectorate from within the company who will be based in Poland for the duration of the assignment. The parent company must meet these requirements no later than the date on which the assignment to Poland starts; for current assignments as at June 18, 2016, the parent company has three months to meet these requirements, i.e. until September 18, 2016.
In addition, employers must maintain and make available to the authorities upon request documentation in relation to the expatriate for the duration of the assignment and for the two years following the end of the assignment.
Finally, similar provisions apply to Polish employers who send their employees abroad on expatriate assignments. Upon request by the Labour Inspectorate they will be required to provide information about their business activities in Poland and the terms of any expatriate assignments outside Poland.
Companies will need to implement effective processes quickly to ensure that they will be able to comply with these requirements, not least given the imminent deadline in mid-September for current assignments.
Extension of prohibition in respect of foreign currency transactions requiring NBU licenses
Our partner law firm, CMS, has recently updated us on the (strict) exchange controls issues in Ukraine. Recent legislation has prohibited certain foreign currency transactions and Ukrainian national’s ability to obtain National Bank of Ukraine licenses. On June 7, 2016, the NBU issued a new temporary Resolution (No. 342), which will be in effect until September 14, 2016. According to this new Resolution, foreign currency transactions requiring NBU individual licenses will continue to be prohibited and the transfer of funds from the Ukraine is still impractical for employee share plans.
The prohibition on currency transfers continues to make the offering of share plans requiring any transfer of funds from Ukraine complex. However, the proliferation of “Temporary legislation” covering this means we will continue to monitor the situation.