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Anna Loginova

Employee Share Schemes

We have noticed that more and more employers are incentivising their employees by offering shares and share options as part of their employment packages. Shares can also be offered to past and future employees. 

Offering shares provides an opportunity to motivate and retain key employees of the business by offering them “skin in the game”, and can thus be beneficial to both the employee and the company. It can also be a great tool for succession planning – by providing a gradual transition of obtaining an ownership in the company or an exit strategy for the existing shareholders.  

When an employee buys shares from the employer at below market value, or is given them for free, there is a benefit to the employee. Further, if the employee transfers, cancels, or gives up the rights to shares, the benefit received from this transaction (which is the difference between the market value of the shares and the amount paid) is also taxable income for the employee. 

Employers can make tax deductions during the year in order to meet the tax obligations on this income on behalf of employees. However, some employers choose not to do this, which means the employee will be required to pay tax on this benefit at the end of financial year. The employer is required to file employment information about the taxable value received by the current employee, even if the tax is not deducted by the employer. There is no requirement to file this information about a past employee.  

From the employer’s point of view, they can claim deductions in relation to the employee share scheme, which matches the income the employee receives.  

There are a number of types of employee share schemes:

•  Basic share scheme: unconditional shares and conditional shares (issue of shares based on past performance) 

•  Option schemes: the right to acquire shares in the future, subject to satisfaction of conditions

•  Tax exempt schemes: these must meet specific criteria

•  Phantom schemes: where no shares are issued to employees, but the employees receive a cash equivalent 

All of the above are fairly complex subjects. If you need assistance to determine the tax implications around employee share schemes, or you are considering offering these to your employees, please get in touch with us - we would be very pleased to help you. Phone +64 9 522 7955, email [email protected] or via our online form

Anna Loginova
Anna Loginova
Client Services Manager
© Gilligan Rowe & Associates LP

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Disclaimer: This article is intended to provide only a summary of the issues associated with the topics covered. It does not purport to be comprehensive nor to provide specific advice. No person should act in reliance on any statement contained within this article without first obtaining specific professional advice. If you require any further information or advice on any matter covered within this article, please contact the author.

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