This Commentary highlights some of the principal calendar and year-end reporting requirements for employee stock plans that U.S. companies most commonly encounter when offering these programs to their employees in selected jurisdictions worldwide. Please note that this Commentary does not address routine, year-end tax reporting obligations. A chart summarizing these items appears at the end of this Commentary. If you have any questions about these requirements or need any assistance, please do not hesitate to contact one of the Jones Day lawyers listed below.
Australia
Employers are subject to annual reporting requirements with respect to all equity grants to Australian employees. By July 14, 2012, Australian employers must issue an Employee Share Scheme Statement to each employee who was granted an equity award that vested in the prior tax year (i.e., before June 30, 2012), and by August 14, 2012, the employer must file an Employee Share Scheme Annual Report with the Australian Taxation Office ("ATO"). However, if taxation is deferred until a subsequent tax year, reporting to employees and the ATO will most likely not be required for 2011–2012. In any event, it is recommended that employees be provided with a statement about future reporting requirements.
Canada
Elimination of Tax Deferral Elections. Prior to
March 4, 2010, for stock options granted over exchange traded
shares with an exercise price equal to or exceeding the fair market
value of the underlying shares at the date of grant (generally,
"prescribed shares"), Canadian employees were generally
permitted to defer tax on the spread of their options at exercise
up to the first CD 100,000 of any options that vested in a
particular calendar year. Employees who desired to take advantage
of this deferral were required to file a deferral election on Form
T1212 with their employer by January 15 of the year following the
year in which the options were exercised, as well as with the
Canada Revenue Agency (with his/her annual tax return for each year
while the income is deferred). This requirement has now been
eliminated.
Effective March 4, 2010, the Canadian federal government
eliminated this deferral election for stock options and, by
extension, the requirement to file a Form T1212. Canadian employees
who filed deferral elections prior to such date and whose tax
liability is greater than the benefit received upon sale of the
stock received upon exercise, however, may receive special tax
relief on stock sold after 2009 and before 2015. This treatment
generally reduces the taxes payable on the proceeds of disposition
from the optioned securities. In order to take advantage of this
special tax relief, employees must make an election by the filing
due date of their personal tax return for the year in which they
sell their stock. The tax relief will also apply retroactively for
employees who sold their stock before 2010 as long as they made the
election for special tax treatment on or before their tax filing
due date for the 2010 taxation year.
China
Exchange Control Reports for Stock Options/Restricted
Stock Units/Purchase Rights. For companies that have
obtained SAFE registration for their equity plans in China,
quarterly reports must be filed with the local SAFE officials
detailing the company's equity plan activity (e.g.,
grants, exercises, share sales and the balance of the designated
foreign exchange account) during the previous quarter. The next
report is due by January 17, 2012 (which is the tenth business day
of the first quarter of the calendar year) for activity that
occurred during the fourth quarter of 2011.
In addition, for those companies with SAFE approval that provides
for a designated quota of foreign currency that may be transferred
out of and/or into China (e.g., under an employee stock
purchase plan), companies must renew their foreign exchange quota
for the 2012 calendar year. This renewal request should be made
annually by the Chinese affiliate that is authorized by its parent
company outside of China to act as its local agent with respect to
SAFE-related matters and should be filed by December 31, 2011.
France
Tax Reporting for French-Qualified Awards.
French affiliates of companies that grant stock options and/or
restricted stock units ("RSUs") to their employees in
France who are tax-qualified under the French Commercial
Code1 must fulfill certain tax reporting requirements by
February 2012.
With respect to French-qualified stock options, the French
affiliate must provide each employee and its appropriate tax
office, by February 15 of the year following the year in which an
employee exercises his or her tax-qualified stock option, with a
statement that provides (i) the French affiliate's corporate
purpose, the location of its principal establishment, and/or the
location of its registered office; (ii) the exercise price of the
exercised stock options; (iii) the number of shares acquired upon
exercise of the stock options; (iv) the date of grant and date of
exercise of the exercised stock options; and (v) the excess amount
of the discount at the time of grant of the exercised stock
options, if the discount granted to the employee exceeds 5 percent
of the average trading price for the 20 trading days preceding the
date of grant. The French affiliate must also send a copy of this
individual statement to the tax office where it files its corporate
tax return before February 15 of the year following the year in
which an employee exercises the stock option.
If the four-year holding period required for tax-qualified
treatment is not observed, the statement must also include (i) the
date of grant and exercise of the stock options; (ii) the exercise
price of the stock options, (iii) the date of sale of the shares
acquired upon exercise; (iv) the number of shares sold; and (v) the
value of the shares at exercise.
With respect to French-qualified RSUs, before February 1 of the
year following the year in which the RSUs vest, the French
affiliate must provide the French social security authorities
(URSSAF, the Unions de Recouvrement des Cotisations de
Sécurité Sociale et d'Allocations
Familiales) with (i) the French affiliate's corporate
purpose, the location of its principal establishment, and/or the
location of its registered office; (ii) the names of the employees
and corporate executives who have vested in French-qualified RSUs
in the previous calendar year; (iii) the number of vested shares;
and (iv) the value of the vested shares at the end of the two-year
vesting period. The French affiliate is not currently required to
file a report with the French tax office with respect to the vested
RSUs.
Annual Report to Shareholders. If the French
affiliate of the issuer company has annual shareholder meetings,
the French affiliate should distribute a special report to its
shareholders at its annual shareholder meeting that lists the
French-qualified stock option and RSU grants that have been made to
the 10 employees of the French affiliate who have received the most
stock options and/or shares upon exercise/vesting of the awards, as
well as the corporate executives of the issuer company, its
affiliates, and the affiliated companies of the consolidated group.
If the French affiliate does not hold its own shareholder meetings,
the French affiliate should still compile this report but retain it
in its files rather than distributing it to shareholders.
India
Tax Reporting for Stock Options/Restricted Stock/Restricted
Stock Units/Purchase Rights. With the relatively recent change from
fringe benefit tax to perquisites taxation of equity awards, there
are a few items that companies and employees should keep in mind.
Companies are now required to withhold on the taxable gains from
equity awards (at exercise for stock options, vesting for
restricted stock and RSUs, and purchase for employee stock purchase
plans). Companies are also required to issue a Tax Deducted at
Source ("TDS") certificate to their employees by April
30, 2012 after the end of the tax year (March 31, 2012). Employees
should use this certificate to file their annual tax return, which
is due on July 31, 2012 (for employees not liable for a tax audit,
depending on annual income) and September 30, 2012 (for
employees liable for a tax audit).
In addition, the Indian affiliate is required to file TDS returns
with the Indian tax authorities on a quarterly basis. Those
returns, which are due by the 15th day following the last day of
the relevant quarter, report details on all amounts withheld during
the quarter, including those amounts withheld with respect to
taxable gains. In respect of the sale of shares, employees will
continue to be responsible for paying and reporting any applicable
capital gains tax.
Exchange Control Report. Companies should also be
aware of the requirement for the Indian affiliate to file a
statement with the Reserve Bank of India ("RBI") through
the AD Category–I Bank, which provides details regarding
the shares issued to residents of India during the prior fiscal
year. This report should be filed on Form ESOP Reporting
(Annex–B and Annex–C) of the RBI Master
Circular on Direct Investment by Resident in Joint Venture (JV) /
Wholly Owned Subsidiary Abroad (dated July 1, 2011) and must be
submitted no later than July 31, 2012.
Ireland
Tax Reporting for Stock Options/Restricted Stock Units/Purchase Rights. By March 31, 2012, all employers are required to file a Form RSS1 with the Irish Revenue with respect to all equity awards that have vested in the 2011 tax year.
Israel
Tax Reporting for Stock Options/Restricted Stock Units/Purchase
Rights. For stock option, RSU, and ESPP grants under trustee and
non-trustee plans in Israel, reports must be made both quarterly
and annually 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. In addition, the local affiliate
or trustee annually must file Form 156 with the Israeli tax
authorities by March 31 of the following year detailing the grant
activity and the status of any outstanding grants during the prior
calendar year.
Please note that while the Israeli tax authorities have
indefinitely extended the deadline for these submissions (until an
electronic submission system is operable), many companies choose to
make these reports in hard copy until the electronic system is
operable in accordance with the applicable deadlines.
Malaysia
Tax Reporting for Equity Award Vesting. Companies that grant equity awards to employees in Malaysia must report, on an annual basis, any stock option exercises, RSU vesting, and/or purchases under an ESPP that took place during the previous calendar year. The report must be submitted to the Malaysian Inland Revenue Board on Appendix C of the Form BT/ESOS/2005 (i.e., the same form used to report the grant of equity awards) and should be filed by January 31 of each year. Please note that if the equity awards are granted to employees of more than one Malaysian entity, a separate filing should be made by all Malaysian entities as they are separate and distinct employers.
Philippines
Securities Reporting for Exemption. Companies that grant equity awards to their employees in the Philippines typically obtain an exemption from the Securities and Exchange Commission in the Philippines ("SEC Philippines") to avoid having to register their securities with the SEC Philippines. Once an exemption has been received from the SEC Philippines, the company is then required to file an annual report with the SEC Philippines by January 10 of each year that reflects the number of shares that have been issued by the company pursuant to stock option exercises, the vesting of restricted stock units, and purchases under an employee stock purchase plan during the prior calendar year.
Singapore
Certain Tax-Favored Program Applications. Companies that grant
stock options and share awards in Singapore may have awards that
are potentially eligible for the Qualified Employee Equity-Based
Remuneration Scheme ("QEEBR Scheme") and the Equity
Remuneration Incentive Scheme (All Corporations)("ERI
Scheme"). Employers that desire to operate stock plans that
qualify for the QEEBR Scheme and the ERI Scheme must keep
sufficient documentation to show that their stock plans satisfy the
applicable requirements when requested by the Comptroller of Income
Tax.
Qualified Employee Equity-Based Remuneration
Scheme. Under the QEEBR Scheme, qualifying employees may
apply to defer payment of the income tax due at exercise of stock
options and vesting of share awards, including RSUs, for a period
of up to five years, subject to an interest payment.
Under the terms of the QEEBR Scheme, a stock plan that meets the
applicable requirements is automatically qualified, and no formal
approval is required. The QEEBR scheme generally requires that
stock options do not vest any earlier than one year after the date
of grant, and for stock options where a discount at grant applies,
the option may not vest any earlier than two years after the date
of grant. For share awards, where the price paid for the share is
equal to or greater than its market value, the award cannot vest
earlier than six months from the date of grant. However, if the
price paid is less than market value, the award cannot vest any
earlier than the first anniversary of the date of grant.
Employees must submit an application form to defer their tax gains
to the Inland Revenue Authority of Singapore, and the local
affiliate must certify on the application form that the stock plan
under which the stock option and/or share award is granted
qualifies for the QEEBR Scheme. The form must be submitted to the
Inland Revenue Authority of Singapore by April 15, 2012.
Equity Remuneration Incentive Scheme (All
Corporations). Under the ERI Scheme, qualifying employees
are eligible for income tax exemptions for gains arising from
qualifying stock option and share award plans, including RSUs, of
up to SGD 1 million (approximately USD 767,754) over a period of 10
years. Under this scheme, the employee will enjoy a full tax
exemption on the first SGD 2,000 worth of gains from the stock
option and share awards plan and a tax exemption of 25 percent on
the remaining amount of gains from such plan for each year of
assessment during the 10-year period. Under the terms of the ERI
Scheme, among other requirements, the same vesting requirements
applicable to the QEEBR Scheme also apply to stock options and
share awards, respectively. In addition, the stock options and
share awards must be offered to at least 50 percent of a
company's eligible employees in Singapore (subject to certain
exclusions for part-time, newly hired, and short-term
employees).
The local affiliate is required to provide employees with the
details of all gains arising from stock plans, segregating the
gains, where applicable, into those qualifying for the various
share incentive schemes and those that do not qualify for any tax
exemption under any schemes, with the annual return of
remuneration, no later than March 1, 2012.
The local affiliate is also required to give a written confirmation
to a qualifying employee within the four-week period following
December 31, 2011 that the qualifying terms and conditions of the
ERI Scheme have been met in respect of those share awards and/or
stock options granted under the relevant qualifying stock
plan.
Thailand
Securities Reporting for Stock Options/Purchase Rights. Companies that grant stock options to the employees of their Thai affiliates must report any exercises of those options to the Thai SEC within 15 days after the end of the calendar year in which the options were exercised in accordance with the details described in the Guidance set forth by the Thai SEC, as well as submit a summary of the plan pursuant to which the options were granted. Therefore, with respect to stock options exercised in 2011, the issuer company must file the report by January 15, 2012. A similar requirement exists for stock purchased under an ESPP—a report has to be filed within 15 days after the end of each purchase period under the plan. For example, if an ESPP's annual purchase period ends on January 31 of each year, the reporting deadline would be February 15 of that same year.
United Kingdom
Tax Reporting for Incentive Stock Options/Purchase
Rights. For each tax year, which runs from April 6 to
April 5 in the UK, UK employers are required to file a number of
tax returns with Her Majesty's Revenue & Customs
("HMRC") that relate to equity grants made to their
employees and the exercise or vesting of such rights.
The first report due is the Employer Annual Return, which is
required with respect to income tax and national insurance
contributions ("NICs") accounted for by UK employers
through the PAYE system (the payroll tax deduction system) in the
previous tax year. This report, which comprises two forms and
includes tax amounts deducted through payroll on stock option
exercises and vesting of other stock purchase rights, must be filed
with HMRC on Form P35 (which summarizes total payroll deductions
for all employees) and Form P14 (which summarizes payroll
deductions for each employee) by May 19, 2012 for the
2011–2012 tax year.
By July 6, 2012, UK employers must file with HMRC an annual return
of expenses and benefits provided to each employee on Form P11D
(one per employee), which will include the value of stock vested in
the employee during the 2011–2012 tax year. By the same
date, UK employers must also file annual stock-related benefits
reports with respect to stock options and other stock purchase
rights that have been granted and/or exercised and/or vested in the
2011–2012 tax year. With respect to stock
options/purchase rights granted under unapproved stock plans, the
report must be filed on Form 42. With respect to rights granted
under HMRC-approved stock plans, UK employers must complete the
prescribed form for that particular type of approved plan (Form 34,
35, 39, or 40).
United States
Tax Reporting for Incentive Stock Options/Purchase Rights. U.S. companies that grant incentive stock options ("ISOs") to their U.S. employees or sponsor an ESPP in which their U.S. employees participate must deliver an information statement (at least once per year) to those employees who have exercised their ISOs during that year or who have purchased shares of stock under an ESPP. For stock purchases that occurred in 2011, information statements must be delivered to employees by January 31, 2012 and then filed with the IRS by either February 29, 2012 or March 31, 2012, depending on the filing format. If paper returns are filed with the IRS, the filing deadline is February 29, 2012, whereas electronically filed returns, which are required for 250 or more returns, are due by March 31, 2012. The information statement must provide the number of shares purchased, the exercise or purchase price, and the value of the shares transferred from the company to the participant, among other items. The information statement for exercised ISOs should be made on IRS Form 3921 and on Form 3922 for shares purchased under an ESPP.
Vietnam
Exchange Control Reporting for Approved
Issuers. Companies outside of Vietnam require exchange
control approval from the State Bank of Vietnam with respect to the
offer of awards under an equity plan to employees in Vietnam. If a
company has received such approval, it is required to submit an
annual report to the State Bank of Vietnam that summarizes the
number of grants made during the prior year as well as the number
of shares issued pursuant to awards in the prior year. Reports for
the 2011 calendar year are due by January 31, 2012.
Country |
Type of Report |
Type of Awards Covered |
Deadline |
Australia |
Tax Report |
All equity awards |
July 14, 2012 |
Canada |
Tax Relief Elections for Deferrals |
Stock options |
Individual's Tax Return Deadline |
China |
Quota Renewal |
Stock options (potentially) and purchase rights under an
ESPP |
December 31, 2011 |
France |
Tax Report |
French-qualified stock options and restricted stock units |
February 15, 2012 |
India |
Withholding Certificate |
All equity awards |
April 30, 2012 |
Ireland |
Tax Report |
All equity awards |
March 31, 2012 |
Israel |
Quarterly Report |
All equity awards |
End of Quarter |
Malaysia |
Tax Report |
All vested equity awards |
January 31, 2012 |
Philippines |
Securities Report |
All equity awards |
January 10, 2012 |
Singapore |
Confirmation Report |
All equity awards that qualify under the ERI Scheme |
January 31, 2012 |
Thailand |
Securities Report |
Stock options |
January 15, 2012 |
United Kingdom |
Tax Report |
Stock options and stock transfers |
May 19, 2012 (Forms P35 and P14) |
United States |
Tax Report |
Incentive stock options and purchase rights under an employee stock purchase plan |
January 31, 2012 |
Vietnam |
Exchange Control Report |
All equity awards |
January 31, 2012 |
Footnotes
1. Among other things, generally equity awards are considered tax-qualified in France if they are granted pursuant to a special French sub-plan and meet special holding period and other requirements.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.