Global Tax and Regulatory Update: December 2018


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This month’s update covers important updates from Belgium to Ukraine.

  Belgium: Salary tax and social security withholding obligations for equity-based incentives

Foreign entities (and their Belgian affiliated companies) that offer equity based incentives in Belgium should be aware of some important recent and upcoming changes in their tax and social security obligations, that may have a considerable impact on the salaries of their employees. We briefly discuss these changes below.

Social security contributions: New position of the National Social Security Office (NSSO)

In Belgium, social security contributions are due on the salary (“loon”/“salaire”) of an employee. The definition of “salary” in the Salary Protection Act is any benefit:

  • in cash or which is assessable in monetary terms
  • to which the employee is entitled as a result of his/her employment relationship, and
  • that is “at charge of the employer”

According to the NSSO the latter condition implies that social security contributions are due if the benefit in question is borne by the Belgian employer, either directly or indirectly. In this respect, the NSSO considered a benefit not only to be indirectly borne if the cost of the benefit is recharged to the Belgian employer/subsidiary by the foreign parent company that has granted the benefit, but also if the Belgian employer acted as a contact point to which employees could turn if they did not get the benefit. The latter referred to a position that was confirmed in 2016 by the Belgian Supreme Court. Therefore, until recently it could be argued that no social security contributions were due if a foreign parent company granted a benefit to an employee of its Belgian subsidiary, often an equity based incentive, if the Belgian employer/subsidiary did not intervene at all, since such grant could not be considered as “salary”.

In its Administrative Instructions that were published in the third quarter of 2018, the NSSO removed its ‘contact point’ position regarding the Belgian employer, and now gives a much broader interpretation of the concept, “at charge of the employer”. The NSSO now deems sufficient that “the granting [of a benefit] is the result of activities performed in the framework of the employment contract with the employer or relates to the function performed by the employee”, in order for the benefit to be at charge of the employer, hence being considered as “salary” and thus subject to social security contributions.

As a consequence, the argument that no social security contributions are due if there is no intervention of the Belgian employer at all, will no longer be accepted, since the NSSO now upholds that Belgian social security contributions are due on any benefit that is granted by a foreign entity;

(i) of which the cost is charged back to the Belgian employer, or
(ii) if it can be linked to the employee’s function, without even the slightest intervention by the Belgian employer

Although there are certainly arguments to challenge this new position of the NSSO, it should nevertheless be taken into account as social security inspectors will adhere to their instructions.

Upcoming salary tax withholding and reporting obligations

Besides the new position of the NSSO, the Belgian government also announced new salary tax withholding and reporting obligations for Belgian subsidiaries of foreign based group entities that grant equity based incentives or other benefits in kind to employees of the Belgian subsidiary. The parliamentary process of the draft bill that will introduce these new obligations is currently ongoing.

Under current Belgian tax law, if a benefit is granted by a foreign group company without the intervention of the Belgian employer, as a rule no withholding and/or reporting obligations apply for the Belgian subsidiary. An exception to this rule applies for stock options which fall under the upfront taxation regime, as for such stock options the Belgian subsidiary does have a reporting obligation. If no reporting obligations apply, the Belgian tax authorities are in principle not aware of the existence of the granted benefits.

If the draft bill is passed in Parliament, all types of employee benefits (including bonuses, equity based incentives and other benefits in kind) granted by a foreign company to employees of an affiliated Belgian company would be deemed to have been granted by that Belgian company. As a result, the Belgian employer should levy Belgian salary taxes and should also have to report such benefits on fiscal slips.

According to the current version of the draft bill, the introduction of these new obligations would be two-staged: the obligation for the Belgian employer to draw up fiscal slips would apply retrospectively for all benefits granted as of January 1, 2018, while the obligation to levy salary taxes would only apply to benefits granted from January 1, 2019.

Our Global Compliance Network Law Firm in Belgium, Argo Law, would be happy to provide you with more information. For any further information feel free to reach out to Philippe Rens at philippe.rens@argo-law.be

Shareworks Global Compliance comment

We recommend share plan administrators review these changes and amend their practices accordingly. Please contact us if you have any questions.

  Denmark: Proposal to amend the Danish Stock Options Act

The Danish Stock Options Act protects employees’ rights to keep and exercise share options in the event of a termination of employment.

On October 3, 2018 Bill No.10 was submitted by the Danish Government intending to provide greater freedom of contract regarding the terms of employee stock option plans. This involved the proposal of lifting the strict ban on the mandatory good leavers and lapse clauses, as well as the statutory rules concerning bad leavers which are currently applicable.

Current position

Currently, a termination by the employee or a dismissal for cause would be considered a “bad leaver.” Termination by the employer without cause or resignation due to issues like pensioning would be considered as a “good leaver” case.

The distinction between a good and bad leaver is crucial in determining an employee’s rights to hold and keep options.

If an employee resigns as a good leaver, the employee is entitled to retain, vest and exercise stock options on terms no less favorable than if the employee had remained employed. The employee is also entitled to receive a proportionate grant of the stock options until the leaving date.

In the case of bad leavers, the entitlement to exercise any stock options or to earn future grants will lapse at the date the leaver’s employment ends.

Proposal

Bill No.10 proposes the removal of the mandatory and protective good and bad leavers provisions. The intention would be that freedom of contract should apply for the employer and the employee to set the terms applicable to stock options.

In addition, Bill No.10 introduces a ban on the possibility of the employer to repurchase shares acquired due to exercise of stock options at a price below market price. This latter issue has not previously been the subject of statutory provisions.

Bill No.10 proposes that the new rules become effective on January 1, 2019 and are applicable to stock option plans issued after this date.

Our Global Compliance Network law firm in Denmark, Gorrissen Federspiel, would be happy to provide you with more information. For any further information feel free to reach out to Morten Skjønnemand at msk@gorrissenfederspiel.com

  Shareworks Global Compliance comment

We are happy to assist should you need any clarification about this proposal.

  France: SAYE in France

From January 1, 2019, French residents who have employment income taxable in France will be subject to a new withholding tax system.

Currently, employees report and pay taxable income as part of the annual tax return process, however as from 1 January 2019 the employer will need to withhold employee’s income tax on all employment-related income, including benefits taxable as employment income. This will impact non-qualified RSU vesting gains, stock option exercise gains and discounted shares offered as part of an ESPP which are all treated as taxable income and subject to the new withholding tax system. However, French-qualified RSUs / stock-options which benefit from a specific regime are out of scope of this new withholding system, so any gains should be reported and paid by the beneficiaries in the year following sale as part of their annual return process. Please note that all French residents still remain under the obligation to file annual tax returns.

To avoid double taxation in 2019 (payment of the 2018 income tax + withholding tax on the 2019 income), each taxpayer will benefit from a specific tax credit (“CIMR”) that will eliminate the 2018 French income tax due on any “non-exceptional” compensation. To be eligible for the CIMR, the income must:

  • by nature, be in the scope of the 2019 withholding tax (which is the case for French non-qualified awards);
  • qualify as “non-exceptional” income.

The French tax administration defined “exceptional income” (and thus not benefit from the CIMR) as any non-contractual income and any income which, by nature, is not received annually.

However, certain remuneration, not expressly provided by the employment contract, may nevertheless still be considered as non-exceptional income for purpose of the CIMR, such as income corresponding to the employer’s “common practices” and income paid on a regular basis.

For non-qualified award gains received in 2018, it will be the employee’s responsibility to determine the amount of their non-exceptional income as opposed to their exceptional income and to report this on their 2018 tax return (to be filed in May 2019). A specific ruling procedure is available to the employer, which obligates the French tax authorities to respond within 3 months following the request. In the absence of a response, the request is deemed granted.

Specifics of the withholding

  • The applicable tax rate is provided by the French tax authorities to the employer through the monthly payroll system (“DSN”).
  • The taxpayer can choose the rate that is applied by his/her employer
    • Tax rate applicable to the taxable income of the household
    • Tax rate applicable to the taxable income of the concerned spouse only
    • Tax rate based on a published tax rates scale
  • The tax rate is confidential so that any communication by the employer to anyone will be treated as a criminal offence.

Our Global Compliance Network Law Firm in France, STC Partners, would be happy to provide you with more information. For any further information feel free to reach out to Etienne Pujol at epu@stcpartners.fr

Shareworks Global Compliance comment

We recommend companies and share plan administrators review their withholding policies and adjust accordingly.

  Kazakhstan: Reminder! Mandatory social insurance contribution

On December 25, 2017, the Kazakhstan Government adopted a new tax code which introduced a number of new measures. Most of these provisions became effective as of January 1, 2018 and the rest were planned to take effect within two years.

As a reminder, one of the measures regarding the obligation of the employer to withhold 1% of the mandatory social medical insurance contributions from employee’s gross income, will take effect on January 1, 2019.

Reduction of personal income tax rates

On May 24, 2018, the proposal to reduce the individual income tax rate from 10% to 1% was adopted by the Kazakhstan Government. This new rate will be effective on January 1, 2019, and applied to salaries not exceeding 25 times the monthly calculation index.

Our Global Compliance Network Law Firm in Kazakhstan, Michael Wilson & Partners, would be happy to provide you with more information. For any further information feel free to reach out to Michael Wilson at michael.wilson@mwp.kz

Shareworks Global Compliance comment

Please contact us in case you need any assistance regarding this new obligation.

  Lithuania: Budget 2019

On October 18, 2018, the parliament proposed the Budget 2019 along with draft amendments to taxation laws in Lithuania. The Tax Reform will come into force January 1, 2019.

These are the highlights of the mentioned reform:

The monthly minimal wage is set at EUR 555 gross and hourly wage at EUR 3.39 gross.

Implementation of Progressive Personal Income Tax rates will be introduced as follows:

  Standard PIT Progressive PIT When progressive PIT is applied?
Until December 31, 2018 15% N/A N/A
From January 1, 2019 20% 27% Part of employment income exceeding 120 AMW
From January 1, 2020 20% 27% Part of employment income exceeding 84 AMW
From January 1, 2021 20% 27% Part of employment income exceeding 60 AMW

* The AMW varies quarterly and now is EUR 926,7 (ref. 2018, 1st quarter data).

Employee and corporate taxes will be consolidated and Social Security Tax contributions will be transferred to the employee.

The salaries of all employees will need to be indexed, i.e. increased by a factor of 1.289 to compensate the effect of the increased rates.

The company’s salary costs should remain the same. See example below:

2018 2019
Salary – EUR 1000 Salary – EUR 1289
Employer Taxes Employee Taxes Employer Taxes Employee Taxes
Social taxes 31.18% (EUR 312) Social taxes 9%

(EUR 90)

Social taxes 1.47%

(EUR 19)

Social taxes 19.5%

(EUR 251)

Guarantee Fund 0.16% (EUR 2)
Personal Income Tax 15% (EUR 150) Long-term work payout fund 0.16% (EUR 2) Personal Income Tax 20%(EUR 258)
Gross – EUR 760 Gross – EUR 780
Workplace expenses – EUR 1312 Workplace expenses – EUR 1312

15% Personal Income Tax will continue to apply to sickness benefits, dividend income, other non-employment related income (i.e. sales revenue from property, rental of property, interest, royalties, donations, gifts, etc.) not exceeding 120 AMW per year, otherwise it will be taxed at 20%.

The Income Tax Exemption rate (ITER) will change annually. As it is not yet clear what minimum monthly salary will come into force from 2019, it is not possible to calculate the exact ITER for 2019. The indexation of salaries and the renewed calculation of ITER will have the greatest impact on lower paid employees – their gross salary should slightly increase.

Social Security Tax ceilings will be introduced to income exceeding 120 AMW per year (about EUR 8,800 gross per month). In 2020, the limit will be reduced to 84 AMW per year, and in 2021 to 60 AMW per year.

Social Security Tax floors will not be applied to workers with a working capacity of 0-55%, including those employees who received maternity, paternity or child care benefits during that month, as well as those who have been paid disability benefits or pension.

Sickness benefits payable by the employer for the first two days of illness will be subject to a 15% Personal Income Tax rate. So far, the sickness benefit has been comprised between 80% and 100% of the employee’s average salary (AS). The sickness benefit will range from 62.06% to 100% of the employee’s AS. This change is due to the indexation of wages.

Our Global Compliance Network Law Firm in Lithuania, Gencs Valters, would be happy to provide you with more information. For any further information feel free to reach out to Mantas Šiaučiūnas at info@gencs.eu

Shareworks Global Compliance comment

We recommend companies review and adjust accordingly. Please, contact us if you need assistance.

  Moldova: Tax reforms

On October 1, 2018, some major changes were implemented in the Moldovan Tax legislation. We have highlighted the two most relevant changes for you in this article:

Income tax

A flat rate of 12% is now applicable to individual income tax replacing the two progressive rates of 7% and 18% which were previously applicable.

Social security

The employer social security has been reduced from 23% to 18%.

Our Global Compliance Network Law Firm in Moldova, Schoenherr , would be happy to provide you with more information. For any further information feel free to reach out to Iurkovski Vladimir at v.Iurkovski@schoenherr.eu

Shareworks Global Compliance comment

We recommend companies review and amend accordingly. Please, contact us if you need any assistance.

  Ukraine: Draft law for regressive social security contribution rates to be considered

On September 18, 2018, the Parliament of Ukraine took the first step towards amending the rates of mandatory social security contributions. The respective draft law was registered in April 2018, but has only now been included into the Parliament’s agenda for consideration.

According to the draft law, the following amendments have been proposed to apply in due course upon Parliament’s approval:

  1. Salary to be subject to the 22% social security contribution up to the ceiling amount of 25 minimum monthly salaries (MMS)
  2. Salaries exceeding this ceiling will be subject to the following regressive rates of social security contributions:
  • 20% on the amount between 25 and 70 MMS
  • 17% on the amount between 70 and 150 MMS
  • 15% on the amount between 150 and 200 MMS
  • 10% on the amount between 200 and 270 MMS
  • 5% on the amount exceeding 270 MMS

The minimum monthly salary for 2018 is UAH 3,723 (approximately EUR 115) and is expected to increase to UAH 4,170 (approximately EUR 130) for 2019. Currently, social security contributions are levied at a flat rate of 22% on salaries below the monthly ceiling of 15 MMS. The salary amount exceeding this ceiling is not subject to social security contributions.

The draft law is expected to be considered by Parliament within the current parliamentary session, i.e. by the end of January 2019.

Our Global Compliance Network Law Firm in Ukraine, CMS Law, would be happy to provide you with more information. For any further information feel free to reach out to Viktoriia Stavchuk at viktoriia.stavchuk@cms-cmno.com

Shareworks Global Compliance comment

We recommend companies review and amend accordingly. We are happy to assist should you need any further information.

Special mention to Philippe Rens of Argo Law 

Philippe is a graduate of the University of Antwerp (Law degree, 2000) and obtained his Master in Tax Law in 2001. He has been a member of the Bar since 2001. Philippe joined ARGO, as a founding partner, in 2013. While his professional focus is on tax law in general, Philippe has gathered significant particular experience in corporate, personal income tax, registration duties and VAT. Philippe has authored several articles on tax law topics.

Upcoming filing and reporting deadlines

  India: Indian employer tax filings

January 15, 2019
Affects: Local company

Indian employers are required to file Form 24Q with the Indian tax authorities on a quarterly basis. These quarterly returns report information on employment income paid to employees (including from share-settled awards) as well as taxes withheld.

The quarterly returns must be submitted by:

  • Quarter ending March,31: May 31
  • Quarter ending June 30: July 31
  • Quarter ending September 30: October 31
  • Quarter ending December 31: January 31

Our collaborating law firm in India, Little & Co., would be happy to assist, should you need any support with this.

  Thailand: Thai SEC filing

January 15, 2019
Affects: Parent company

The annual reporting deadline for companies that grant stock options to employees in Thailand is approaching. Companies must report any exercises of those options to the Thai SEC by January 15 following the year in which they were exercised.

Our collaborating law firm in Thailand, International Legal Counsellors Thailand Limited, is happy to assist should you need any support with this.

  Taiwan: Tax withholding statement

January 31, 2019
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, if they were exercised or purchased under an employee purchase plan in the previous calendar year.  In addition, the Taiwan employer must also issue to non-withholding statement to employees by February 10.

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

Malaysia: Annual reporting of equity awards

January 31, 2019
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.

  Sweden: Swedish annual tax reporting

January 31, 2019
Affects: Local company

The employer must provide information on the company’s employees to the Swedish Tax Agency by January 31 at the latest, following the year of payment.

Our collaborating law firm in Sweden, Skeppsbron Skatt, is happy to assist, should you need any support with this.

  Israel: Equity reporting

February 9, 2019
Affects: Local company

For stock option, RSU, and ESPP grants under trustee and non-trustee plans in Israel, reports must be made quarterly to the Israeli tax authorities. At the end of each calendar quarter, the local affiliate or trustee, as applicable, must file Form 146 detailing the grants made during that quarter with the Israeli tax authorities.

Please note that while the Israeli tax authorities have indefinitely extended the deadline for these submissions until an electronic submission system is operable, some companies and trustees choose to make these reports in hard copy in the meantime.

Our collaborating law firm in Israel, Yair Benjamini Law Offices, is happy to assist, should you need any support with this.

  Germany: Wage tax certificate

February 28, 2019
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 include 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, would be happy to assist, should you need any support with this.

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