Global Tax and Regulatory Update: October 2018

This month’s update covers important updates from Argentina to Vietnam.

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  Argentina: Employee Social Security Contributions Updated

On August 29, 2018, the Social Security Administration (Administración Nacional de la Seguridad Social – ANSES) published the Resolution 128/2018 in the Official Gazette. The resolution established the revised minimum and maximum wages serving as the base of the social security calculation.

The new monthly salaries are:

  • Minimum salary ARS 3,004.25
  • Maximum salary ARS 97,637.14

The revised salaries are effective from September 1, 2018 and no amendments were made to the 17% tax rate applied to this calculation.

As employee social security contributions are calculated on the total amount of employee’s salaries, the threshold to the employee security bands was adjusted.

 

Shareworks Global Compliance Comment

We recommend companies review social security contributions.

  Chile: Proposed Change in the Chilean Capital Gains Tax

On August 2018, a tax reform package to modernise and simplify the tax system was submitted to the Chilean Congress.

In case of capital gains for tax payers individuals, the bill introduces an alternative tax system for at the election of the tax payer:

  • Fixed rate of 20% on capital gains
  • Income Tax with progressive rates

Furthermore, there is a different treatment of employee stock options depending on whether the employees agree or not to the individual or collective employment contracts. If the employees agree to the individual or collective employment contracts there will be no tax on the grant, transfer or exercise of employee stock options. If they do not agree to the individual or collective contracts there will be no tax on grant, but there will be tax due on transfer or exercise of the employee stock option. In either case, the holder of the stock options would be required to pay tax on capital gains only when the shares are sold.

There is no certainty on whether this bill will be approved or not, or the definitive content of any tax reform.

Our Global Compliance Network Law Firm, Philippi Prietocarrizosa Ferrero DU & Uría, in Chile would be happy to provide you with more information. For further assistance feel free to contact Paulina Miranda at paulina.miranda@ppulegal.com

 

Shareworks Global Compliance Comment

We recommend companies stay alert for further communications from us and our local experts.

  China: New Monthly Standard Deduction Increase Effective in October 1, 2018

On August 31, 2018, the Standing Committee of National People’s Congress passed the individual income tax amendments. The amendments were proposed by parliament in June, 2018. The new Individual Income Tax Law (IIT) will be fully effective as of January 1, 2019. As a transitional measure and pursuant to these amendments, the monthly standard deduction has been increased and will be implemented, along with new tax brackets, from October 1, 2018.

According to Circular [2018] No. 98 issued by the Ministry of Finance (MoF) along with the State Administration of Taxation (SAT), the new individual income tax increases the monthly standard deduction from RMB 3,500 to RMB 5,000 on wages and salaries received on or after October 1, 2018.

The new income tax bands in China effective in October 1, 2018 are:

Monthly Taxable Income (RMB)* Tax Rate Quick Calculation Deduction (RMB)
0 – 3,000 3% 0
3,000.01 – 12,000 10% 210
12,000.01 – 25,000 20% 1,410
25,000.01 – 35,000 25% 2,660
35,000.01 – 55,000 30% 4,410
55,000.01 – 80,000 35% 7,160
80,000.01 and over 45% 15,160

*Monthly Taxable Income Amount = (Monthly Income Amount) – (The Amount of Social Tax Contributions Paid by Employee) – (RMB 5,000)

The Income Tax Amount = (Monthly Taxable Income Amount* Tax Rate) – (Quick Calculation Deduction)

We will inform you of other amendments and their implications when more information has been released by the local authorities.

Our Global Compliance Network Law Fir,m MHP Law Firm, in China would be happy to provide you with more information. For further assistance feel free to contact Kevin Xu at kevin.xu@mhplawyer.com

 

Shareworks Global Compliance Comment

We recommend companies review and adjust accordingly when changes become effective.

 

  Saudi Arabia: Quarterly Summary Filings Exemption for Companies not Listed in Saudi Arabia

From April 1, 2018, an exemption was made available for companies not listed in Saudi Arabia offering shares in this jurisdiction. This exemption allows quarterly summary filings instead of pre- and post-offer notifications. Highlights below on how the quarterly filing should be completed:

The Company (”Offeror”) must notify the Capital Market Authority (“CMA”) with the total number and value of the exempt offers. This notification can be made by an authorised person or the Offeror.

In the event the plans are amended or changed, the Offeror must notify the CMA in order for the regulator to determine whether any additional filings are required.

In the case where an ongoing offer has already been communicated through the former private offer method, this needs to be closed before the end of September 2018 by an authorised person. At the end of Q3, the company should pursue the quarterly communication for an ongoing offer, as stated above.

If there was an offer of shares to employees in Saudi Arabia which was not communicated through the private offer system nor the quarterly notification option by July 2018, a notification to the CMA must be completed with immediate effect.

 

Shareworks Global Compliance Comment

Please contact us if you need guidance or assistance related to this particular scenario.

  United States of America: Tax Reform May Limit Deduction for Executive Compensation

The Tax Cuts and Jobs Act of 2017 (“TCJA”) significantly amended Section 162(m) of the U.S. Internal Revenue Code which had previously generally limited a publicly held corporation’s deduction for non-performance based compensation paid to the Chief Executive Officer (“CEO”) and the four most highly compensated officer (other than the CEO and Chief Financial Officer (“CFO”)) to USD 1 million during the taxable year.

TCJA Changes to Section 162(m)

Expanded the scope of ”publicly traded corporations” to include all foreign corporations that are required to file certain reports with the U.S. Securities and Exchange Commission (“SEC”), issue U.S. public debt or have securities traded through American Depositary Receipts (“ADRs”).

Eliminated the commissions and qualified performance-based compensation exemptions (including exemptions for stock options and stock appreciation rights) to Section 162(m)’s deductibility limits.

Expanded the scope of a corporation’s “covered employees” to include its CFO and any person who is a “covered employee” on or after January 1, 2017, for as long as that person (or his/her beneficiary) receives compensation, even if the person no longer serves as an officer of the corporation or has terminated employment with the corporation.

Provides that compensation paid under a written contract in effect on November 2, 2017 and not materially modified after such date would be “grandfathered” and subject to the prior Section 162(m) rules.

Foreign Corporations

Prior to the TCJA, Section 162(m) defined a “publicly held corporation” as any corporation issuing equity securities registered under Section 12 of the Securities Exchange Act of 1934 (the “Exchange Act”), which generally requires issuers to register a class of equity securities and comply with reporting requirements if the issuer has assets of USD 10 million and 2000 holders of record (or 500 non-accredited holders). The TCJA expanded this definition of “publicly held corporation” such that it now covers foreign corporations that:

  • Issue debt listed for public trading on a U.S. securities exchange;
  • Are not required to register issued securities under the Exchange Act, but are required to file certain periodic reports under the Exchange Act;
  • Have securities traded through ADRs;

Previously, foreign private issuers were generally not subject to Section 162(m) based on various Internal Revenue Service (“IRS”) private letter rulings because they were typically not required to file proxy statements or disclose their named executive officers’ compensation to the SEC. Now, the Joint Explanatory Statement of the Committee of Conference (which explains the TCJA) states that the definition of “covered employee” includes officers of corporations not required to file a proxy statement but would otherwise fall within the revised definition of a “publicly held corporation.” Thus, the basis for the former IRS regulatory exemption is gone. Foreign private issuers should consider whether they are now subject to Section 162(m) if they meet any of the criteria above and whether compensation paid to a covered employee can be deducted on its U.S. tax return.

What’s Next?

The U.S. Treasury Department and the U.S. Internal Revenue Service anticipate issuing additional guidance on Section 162(m), and have specifically requested comments regarding the application of the definition of “publicly held corporation” to foreign private issuers, including the reference to issuers that are required to file reports under the Exchange Act.

Our Global Compliance Network Law Firm Pillsbury Winthrop Shaw Pittman LLP in the US would be happy to assist you. Feel free to contact Susan P. Serota at susan.serota@pillsburylaw.com, Mark Jones at mark.jones@pillsburylaw.com, and Kevin Lin at kevin.lin@pillsburylaw.com for additional information about these changes.

 

Shareworks Global Compliance Comment

Please contact us if you need guidance or assistance related to this particular scenario.

  Vietnam: Special Circumstances of an Expatriate Participant Purchasing Offshore Shares

This month’s article of our series on Vietnam, provided by our collaborating Global Compliance Network Law Firm, Russin & Vecchi, will discuss the special circumstances of an expatriate participant purchasing offshore shares and whether the State Bank’s approval is required or not.

There is a question whether the purchase of offshore shares by an expatriate must be approved by the State Bank of Vietnam (“SBVN”). The Vietnamese Ordinance of Foreign Exchange law uses the term “resident” in respect of the control of foreign exchange. A resident includes an expatriate who stays in Vietnam for 12 months or more. On the one hand, the Ordinance on Foreign Exchange says that a resident, other than a credit institution, if permitted to conduct an offshore indirect investment, may open and use an account to transfer investment capital abroad, and to repatriate capital, profit and other revenue from an offshore indirect investment to Vietnam in accordance with the regulations of the SBVN. In light of this provision, purchase of offshore shares under a share plan by an expatriate would seem to require approval by the SBVN in the same way that Vietnamese purchases require approval.

Contrasted with this, Investment Law No. 67/2014/QH13 dated November 26, 2014 and the Ordinance on Foreign Exchange say that a foreign investor, including an offshore entity or a foreigner, has the right to transfer his/her capital or income abroad if he/she has fulfilled his/her tax and other financial obligations. In light of this latter provision, we have generally taken the position that there is no restriction on an expatriate (whether or not a resident) to purchase offshore shares using his/her own money.

Since Circular 10 only applies to share plans offering to Vietnamese employees rather than expatriates working in the local employer, an expatriate may participate in a share plan without the SBVN’s approval. It means that, legally, expatriates participate in the share plan individually or through the local employer, if the parent offers expatriates directly and individually the right to participate in the share plan.

Next month’s newsletter will discuss tax consequences for employees under an employee share plan.

Our Global Compliance Network Law Firm Russin & Vecchi in Vietnam would be happy to provide you with more information. For further assistance feel free to contact Diu Dao Hong at dhdiu@russinvecchi.com.vn

 

Shareworks Global Compliance Comment

We recommend companies consider offering cash-settled share plans, as it might be possible to avoid Exchange Controls Issues.

 

Partner Spotlight: Paulina Miranda

Paulina Miranda is Partner of Philippi Prietocarrizosa Ferrero DU & Uría expert in labor and employment law, social security and immigration, focusing on assisting national and multinational companies with their employment matters, providing strategic advice and counseling to multinational employers on a wide range of global employment law and human resources matters. She assists employers with global employment issues and has significant experience in employment matters in M&A (including local and cross-border mergers and acquisitions transactions). Her practice also includes commercial and corporate law.

 

UPCOMING FILING AND REPORTING

  India: Annual Report

September 30, 2018
Affects: Local Company

Indian employers must file an annual report with the Reserve Bank of India which provides details regarding the shares issued to residents of India, the number of employees who received the shares and the amount of funds remitted for the purchase of shares during the previous tax year on a specified form. Although the report must be filed within a reasonable time following the end of the financial year, companies are advised to file the report by September 30.

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

  India: Indian Employer Tax Filings

October 15, 2018
Affects: Local Company

Indian employers are required to file Form 24Q with the Indian tax authorities on a quarterly basis. The 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., is happy to assist, should you need any support with this.

  Italy: Foreign Asset Reporting

September 30, 2018
Affects: Employee

Italian resident taxpayers who are either the legal owner or beneficial owner of financial assets held abroad, including shares in foreign companies, have to report such assets on Schedule RW of their income tax return, which is due by 30 September following the end of the calendar year.

Our collaborating law firm in Italy, Gianni, Origoni, Grippo, Capelli & Partners, is happy to assist, should you need any support with this.

  Israel: Equity Reporting

November 9, 2018
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.

 

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