8 October 2021
Staying ahead of the curve on regulatory and tax compliance is a never-ending task for companies.
To help keep you up-to-date with recent global developments, we are holding our fourth and final Worldwide Wrap-Up webinar for 2021 to highlight some of the most recent changes that should be on your radar. We will be covering the below topics and more in more detail on our 13 October webinar.
Australia - employee share scheme tax and regulatory reforms
In July, the Australian government released draft legislation to implement reforms to the taxation and regulation of employee share schemes (ESS) announced in the 2021 budget. In brief, the draft legislation covers:
- the removal of the taxing point on cessation of employment for employee share-based awards;
- simplifying the securities law exemptions for both listed and unlisted companies including by creating a distinction between offers of free shares and contributory plans.
The draft legislation was subject to a period of consultation which ended on 25 August. There is currently no timetable for enactment of the new legislation but note that under the current draft, the removal of cessation of employment as a taxing point will only apply to awards granted on or after the start of the tax year following Royal Assent, so 1 July 2022 at the earliest.
Although this is only draft legislation, the proposals were widely welcomed by the business community in Australia and the general view is that the proposed changes will be enacted substantially as set out in the draft legislation. The overriding aim is to simplify the process of offering ESS plans and to make it more attractive to both employees and employers. We will be following the changes and will keep you updated.
China - Beijing SAFE additional reporting obligation
Any changes to the operation of the SAFE registered plan or any changes to the registered participation list must be filed as an 'alteration registration' with the local SAFE office within three months. In June, Beijing SAFE announced that it now requires companies to provide details of the accumulated grants of each relevant participant (i.e. a full breakdown of the number of shares granted to each participant) when this filing is made.
This is potentially an onerous new burden as the information has to be compiled in time for the filing. This can create a timing issue for certain types of plans as the updated registration might not be able to be finalised until an enrolment window has closed. As always when dealing with a SAFE filing requirement, it is crucial to plan ahead and to be prepared for changes in the information required.
China - new data protection law
China has recently introduced new data security legislation to supplement the existing Cybersecurity Law of China.
- The Data Security Law (effective 1 September 2021) establishes a fundamental and categorised data security system, applying to potentially all data processing activities.
- The Personal Information Protection Law (PIPL, effective 1 November 2021) is more focussed on personal information protection and safeguarding the rights of personal information subjects. PIPL has some similarity to the EU’s General Data Protection Regulation (GDPR).
The new data securities legislation imposes strict obligations on organisations in relation to the collection, processing, use and transfer of personal data.
This supports the general direction of travel globally that countries are seeking to implement stronger data protection laws and enforcement powers. It is important to be aware that generic consent clauses may not always be sufficient for local compliance. Companies may wish to undertake an audit of their internal privacy policies and consider what administrative and technical processes could be put in place to fill current compliance gaps and, on-going, to monitor compliance with PIPL.
Netherlands - proposed change to taxable moment
The Dutch government has proposed a change to the timing of the taxation of options which are subject to selling restrictions. Under the proposal, employees can choose to defer the taxable moment of their options from exercise to the moment the underlying shares can be traded by the employee. If an employee chooses to defer the taxable moment, as long as transfer restrictions apply, the shares will not be considered tradable and taxation will take place at the time the acquired shares become tradable, i.e. when any sale restrictions are lifted and the employee may sell the shares they acquired on exercise. The employee retains the right to elect to be taxed on exercise.
The share option will have to be taxed no later than five years after the acquisition of the shares (for shares that are already listed) or five years after the IPO of a start-up.
The amendment is due to take effect on 1 January 2022.
We are always delighted when rules are changed to make it easier for employees to benefit from share plans! As always, the devil will be in the detail and we look forward to seeing how the proposal develops.
Romania - additional securities disclosures abolished
Previously, for companies looking to rely on the employee share plan exemption under the EUPR, separate disclosure requirements were required under Romanian securities law (beyond the information specified in the EUPR). This requirement has now been abolished, so from 24 September 2021, the additional disclosures are no longer required and companies will only have to make the standard EUPR information disclosures.
This is a helpful and positive move by the Romanian securities authority. The background to the EUPR was to harmonise the securities requirements of all EU member states but unfortunately many countries have imposed their own filing or reporting obligations. This has resulted in additional costs and complications for employers making offers to employees in those countries. By abolishing the need for a separate disclosure regime, the Romanian securities are bringing the rules in line with the EUPR.
UK - increase in national insurance and dividend tax rates
The government has announced increases to both National Insurance Contribution (NICs, the UK social security) rates and dividend tax rates, in an attempt to boost the NHS (National Health Service) and fund reforms to the social care system.
From April 2022, NICs rates will rise by 1.25% for both employees and employers. From 2023, the additional 1.25% will be ring-fenced as a new health and social care levy.
Currently, dividends in the UK are taxed at 7.5% for basic rate taxpayers, with increased rates for higher and additional rate taxpayers. From April 2022, each of these rates will rise by 1.25%. The current £2,000 tax-free allowance for dividends will not be affected.
These changes will impact almost all individuals working in the UK, including those employed by overseas companies.
Most working individuals will be affected by these increases in some way or another. From an incentives point of view, the UK’s tax-qualified share plans could prove to be more popular than ever because they all provide ways in which individuals and companies can pay less or no NICs. However, it isn’t clear yet if the health and social levy will also be excluded under UK tax-qualified plans and we will be looking closely at the detail of the new levy when they are released.
We hope you can join us for our webinar on 13 October as we go through the key regulatory and tax updates from the last quarter, including those set out above and more, and how these may impact your share plan offerings
If you have any questions or would like to discuss your global legal or tax compliance, please do get in touch - we would love to help!
Lorna Parkin, Lewis Dulley and Rebecca Campsall