Employee Share Plans in Europe and the USA - Sorainen

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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
Employee Share Plans in Europe and the USAPortugal4.2.3 Reporting requirements: The employer must declare the existence ofthe employee share plan to the tax authorities by the 30 th June of thefollowing year (even if the plan relates to a group company). 104.3 Tax withholdingThe employee is responsible for accounting for income tax. The employer mustwithhold any social security contributions.5. Taxation of share options5.1 Employee tax and social security contributions5.1.1 Grant: There is no tax charge on the grant of a share option.5.1.2 Exercise: There is an income tax charge on the exercise of a shareoption on the difference between the market value of the shares at thedate of exercise and the option exercise price. For the 2010 tax yearincome tax rates range from 11.08% to 45.88%.5.1.3 Social security contributions: Social security contributions arise onthe exercise of options at the rate of 11% for the 2010 tax year.However, social security contributions will not arise if the gain is viewedas a non-recurring bonus (which will depend on how the relevantemployee share plan is operated in practice). 115.2 Employer tax and social security contributions5.2.1 Corporation tax deduction: Costs incurred by the Portugueseemployer in relation to an employee's acquisition of shares on exerciseof an option at a discount to the then market value of shares should betax deductible. 1210If the employer bears the costs of the plan (including the gains arising for the employees) it must:• keep a record of all the participant employees, respective tax numbers and codes as well as of thedates of exercise, disposal or waiver to exercise or repurchase, amounts, prices or benefits arisingfrom the plan and provide a copy of the pertaining part of the record to each participant up to the20 th January of the following year; and• include the said amounts prices or benefits in an annual statement that is submitted annually, up tothe end of February, to the tax authorities.These obligations are applicable to the local subsidiary in case the plan is created by its non residentparent company. These reporting obligations also apply to share options.1112Please refer to footnote 7.A deduction is available provided that the acquisition forms part of the employee's remuneration.UK/1729295/03 154 September 2010
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Employee Share Plans in Europe and the USA - Sorainen

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