Employee Share Plans in Europe and the USA - Sorainen

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Employee Share Plans in Europe and the USASweden4. 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 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 income year income taxrates range from approximately 31% to 57%. An exemption may apply ifshares are offered at the same time to persons other than employees. 74.1.2 Social security contributions: An employee will be subject to socialsecurity contributions on the amount subject to income tax at a rate of7% on income up to SEK 412,377 for the 2010 income year. The socialsecurity contributions reduce the income tax by a corresponding amountand are included in the marginal tax rates stated in paragraph 4.1.1.4.2 Employer tax and social security contributions4.2.1 Corporation tax deduction: A Swedish subsidiary may be entitled todeduct any costs incurred or charged by the parent company. However,the position is complex and specific advice should be sought in eachcase. 84.2.2 Social security contributions: Employer social security contributionswill be payable in respect of shares provided to employees for free or ata discount on the value of taxable benefits received by the employees ata rate of, generally, 31.42% for the 2010 income year. 9 Employer socialsecurity contributions are not subject to any earnings caps.7An employee is not taxed on the acquisition of shares in a limited liability company or in a companybelonging to the same group, even if the consideration payable is less than market value, providedthat:• shares have been acquired pursuant to a simultaneous offer by persons other than employees andshareholders (including Board Members and Deputies) of the company (or group companies), onthe same terms as those applying to the employees;• employees’ and existing shareholders’ acquisitions of shares have not, in total, exceeded 20% ofthe total number of offered shares; and• the employee has not acquired shares for an amount exceeding SEK 30,000.89In a case involving a plan which delivered free shares, The Supreme Administrative Court permitted anemploying company to claim a corporation tax deduction equal to the value of the shares delivered toits employees.The cost of employers’ social security contributions is tax deductible for the employer.UK/1729295/03 183 September 2010
Employee Share Plans in Europe and the USASweden4.3 Tax withholdingThe employer is only liable to withhold tax from the employee's cash salary (andcash benefits) in the month in which the benefit is received. Where there isinsufficient cash salary to cover the necessary withholding then the employee isrequired to pay the shortfall to the Swedish Tax Agency.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 if theoption is deemed to be an employee share option and, as such, is nottreated as a security. This will, generally, be the case if the option is nottransferable and will lapse on cessation of employment. 10 If the shareoption is deemed to be a security, and is deemed to have been fullyacquired at grant, then taxation occurs at grant.5.1.2 Exercise: There is an income tax charge on the exercise of anemployee share option (which is not a security) on the differencebetween the market value of the shares at the date of exercise and theoption exercise price. For the 2010 income year income tax rates rangefrom approximately 31% to 57%. 115.1.3 Social security contributions: Social security contributions arise onthe exercise of employee share options at a rate of 7% for the 2010income year on income up to SEK 412,377 12 . The social securitycontributions reduce the income tax by a corresponding amount and areincluded in the marginal tax rates stated in paragraph 5.1.2. If the shareoption is a security, social security contributions arise at grant (seeparagraph 5.1.1).1011The acquisition of securities (for example share options) below market value is a taxable benefit. Thisis generally true even if the securities are subject to some sale or transfer restrictions. If, on the grantof a share option, an employee is deemed to have acquired a security, he will be taxed on that grant.However, not all options are deemed to be securities. Employee share options which lapse oncessation of employment and which are not transferable are generally not regarded as securities. Inthese circumstances, an employee who is granted an employee share option is deemed to havereceived a taxable benefit only when the option is exercised. The value of the benefit is the differencebetween the market value of the shares on the day the option is exercised and the exercise price paidfor the shares. Any premium paid for the option may be deducted when the taxable benefit iscalculated.In certain cases a flat rate tax of 25% may instead be imposed if the employee share option holderbecomes non-resident for tax purposes in Sweden before the time of exercise.UK/1729295/03 184 September 2010
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Employee Share Plans in Europe and the USA - Sorainen

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