Employee Share Plans in Europe and the USA - Sorainen

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