Employee Share Plans in Europe and the USA - Sorainen

Employee Share Plans in Europe and the USAPortugal4. Taxation of share acquisitions4.1 Employee tax and social security contributions4.1.1 Tax: An employee who acquires shares in his employing company or itsparent company free of charge or at a discount to market value 5 willnormally be liable to pay income tax. The tax charge is on the differencebetween the market value of the shares at the time of acquisition and theamount, if any, paid for the shares. For the 2010 tax year the incometax rates range from 11.08% to 45.88%. 64.1.2 Social security contributions: An employee will be subject to socialsecurity contributions on the amount subject to income tax at the rate of11% for the 2010 tax year. However, social security contributions will notarise if the gain is viewed as a non-recurring bonus (which will dependon how the relevant employee share plan is operated in practice). 74.2 Employer tax and social security contributions4.2.1 Corporation tax deduction: Costs incurred by the Portugueseemployer in relation to an employee's acquisition of shares at a discountor as a free bonus should be deductible. 84.2.2 Social security contributions: Employer social security contributionswill be payable in respect of shares provided to employees for free or ata discount if the employee is subject to social security contributions.The maximum rate of employer social security contributions is 23.75% 9for the 2010 tax year.56789The price paid by subscribers who are not employees will be used instead of market value if there areother subscribers.Employment income is taxed at progressive rates (ranging from 11.08% to 45.88% for 2010).Certain amendments to social security legislation have been approved and were expected to be inforce as from 1 January 2010. However, implementation of the changes has now been postponed to 1January 2011. The changes which have been approved include (1) to the rates, (2) clarification ofwhat is considered to be a recurring bonus and (3) clarification on the treatment of discounts granted toemployees on the acquisition of shares in the employer. According to the new law ("ContributiveCode") there is a specific provision excluding from social security contributions the "discounts grantedto employees on the acquisition of shares of the employer or of companies within the employer's groupof companies". Once the new law comes into force, discounts granted under employee share planswill be excluded from social security contributions (both employee and the employer contributions).A deduction is available provided that the acquisition forms part of the employee's remuneration.Please refer to footnote 7.UK/1729295/03 153 September 2010