29 April 2020
Staying ahead of the curve on regulatory and tax compliance is a never-ending task for companies.
To help you keep on top of recent developments, this is our second quarterly Worldwide Wrap-Up of 2020, with some of the most recent changes that should be on your radar. We have summarised these topics briefly in this alert, however they will be covered in more detail, along with some other recent developments, on our 6 May webinar.
Argentina - tax on foreign exchange
Since the last Worldwide Wrap-Up, we have had more information on the 30% tax on foreign exchange transactions in Argentina. The tax was imposed from 23 December 2019 and is due to stay in place for five years. As outlined in our January newsletter (here) the tax applies to the USD200 monthly foreign exchange limit, further affecting the ability of employees in Argentina to purchase shares under an incentive plan.
The purpose of the tax is to provide a disincentive for people to buy foreign currency without a 'specific purpose’ and it was hoped that, although the wording was very broad, it would not capture FX transactions for share plans. Unfortunately this has not proven to be the case and the impact is to further limit the ability of employees in Argentina to participate in a global share plan which requires employee contributions.
Canada - proposed cap on deductions for stock options
The Canadian budget, which was due to be released on 30 March, has been postponed during the COVID-19 emergency. As a result there is no further information on the proposal to limit the tax reduction currently available for holders of stock options (see the January Worldwide Wrap-Up for more detail).
Nothing new to report but it is a case of when, rather than if, this change will come into force, and it is likely to have a major impact on the value of stock options for employees in Canada. We will continue to monitor developments.
Chile - tax reform law
Chile published new tax rules on 24 February 2020. Amongst other changes, the law introduced a new 40% top tax rate for individuals and modified the definition of tax resident, bringing Chile into line with the OECD definition. The changes, including the new individual tax rate, were backdated to 1 January 2020.
The new tax rules which have been under discussion for eighteen months, represent a major overhaul of the tax system in Chile. Companies will need to assess the impact of the changes on share plans operating in Chile.
Global tax rates for 2020
With several countries starting the 2020 tax year in March and April, or new rates being announced since our last webinar, we will look at where rates have changed. Our international advisors provide us with new rates to update our database as quickly as they become available. In this Wrap-Up we take a brief look at some of the changes.
Chile - top rate of individual tax increased from 35% to 40%
India - new 5% tax on foreign exchange
Scotland - tax bands revised
UK - increase in CGT annual exemption
We will discuss the detail of these changes during our 6 May webinar.
India - 2020 budget
Taking effect on 1 April, the Indian government has introduced a new tax on outward remittances under an approved FX scheme called the Liberalised Remittance Scheme (or LRS). Under the new rules, any outward remittance under the LRS for INR700,000 or more will be subject to a 5% tax at source. The tax will be collected by the Authorised Dealer when the remittance is made. Also applying from 1 April 2020, a tax break is available for shares allotted by start-ups to their employees in India under an ESOP.
We understand that the new FX tax seeks to encourage Indian tax payers to file a tax return, as the tax can be reclaimed, but only if they file a tax return. The tax will impact employees who utilise the LRS to make FX payments under an employee share plan.
Poland - securities filing obligation extended
Following the introduction of the EU Prospectus Regulation in 2019, Poland has introduced additional obligations for a company to notify the securities regulator (the KNF) of an allocation of securities under an employee share plan. The filing was previously only required for an offer to 150 or more employees in Poland, but is now required for any offer, irrespective of the number of offerees. Please see our recent newsletter (here) which details the filing obligations.
For companies which have not previously had to make a filing in Poland (because they fell under the 150 person threshold), they will need to ensure compliance with the extended notification requirement for all plans.
Russia - sanctions imposed under data localisation rules
'Localisation' rules require data operators to store and process the personal data of Russian nationals in databases which are physically located within Russia, although 'secondary' databases can be located outside Russia. Regulations were introduced in December 2019 providing substantial fines (up to RUB18,000,000) for non-compliance and the regulator, Roskomnadzor, has already successfully taken action to impose fines on foreign companies for failing to comply with the rules
It took Roskomnadzor only two months to make use of the new sanctions against foreign employers. As data protection rules become the norm and regulators are given teeth to enforce those rules, we expect to see more successful actions of this nature. Although data protection is not a share plan specific issue, the global nature of share plans means that it needs to be taken seriously where companies are operating share plans internationally.
Sweden - limits on withholding amounts under new rules
In 2019, Sweden introduced new employer monthly reporting for tax and social security withholding. Tax rules do not permit the amount of tax withheld from an employee to be greater than the employee’s monthly cash salary income. Therefore, if the employee receives equity income, which causes the tax due in a month to be more than the amount of cash salary income received in that month, this could result in the amount of tax due exceeding the monthly income.
Under the annual reporting system, employers could ensure that the average amount withheld over 12 months did not exceed the permitted amount. Since the introduction of monthly reporting, employers have had to review how they operate withholding to ensure compliance with the law. Unfortunately there does not appear to be any interest at official level to adapt the rules to avoid what seems to be an unintended consequence of the change to monthly reporting.
UK - off-payroll working in the private sector - delayed
In the January edition of the Worldwide Wrap-Up, we reported that the UK was set to see an extension of the off-payroll working rules (known as IR35) to include the private sector from April 2020. Due to the ongoing COVID-19 emergency, the extension of the off-payroll rules has been delayed until April 2021.
The extension of the off-payroll rules was already controversial, so it is not surprising that it has been put to one side during the current crisis. It will be interesting to see if it is further delayed or whether further amendments are introduced to limit the impact on what is already likely to be a fragile employment market.
COVID-19 - global impact
COVID-19 is having an impact on the implementation of rules and regulations in every sector and in every part of the globe. We cover COVID matters in standalone webinars, but we will highlight key features in the Wrap-Up Webinar on 6 May.
Although this webinar aims to focus on non-COVID updates, as the elephant in the room, it is impossible to ignore the impact of the pandemic. We will talk about how to keep up-to-date with share plans related COVID news.
If you have any questions, or would like to discuss any element of legal and tax compliance for your global incentive plans, do get in touch - we would be delighted to help!
Lorna, Sally and Sonia