Global Regulatory Developments in Share Plans

Multi-award-winning law firm Tapestry Compliance has provided the table summary below, showing some of the key global regulatory developments in share plans over the past 12 months.

Country	Regulatory developments	Tapestry comments
UK	Employer tax return filing changes All employers operating share plans in the UK must submit the relevant employment related securities (ERS) return(s) to HM Revenue & Customs (HMRC) by 6 July following the end of the tax year on 5 April. In 2023, all of the end-of-year ERS return templates and corresponding guidance notes were reviewed and updated. HMRC also published an ERS bulletin in February 2024 which explained how recent changes to tax-advantaged CSOP and EMI plans would be reflected in the reporting process.	The HMRC registration and reporting process can take some time and there are many important nuances, so we recommend that employers start preparing their return(s) as soon as possible. Financial penalties automatically apply if a company fails to file its ERS returns by the 6 July deadline, even if no reportable events occurred in the tax year (in this case, a ‘nil return’ should be filed). Tapestry can assist with staying on top of your employer tax reporting and withholding obligations globally, including ensuring that you have the latest tax and social security rates before key events.
USA	SEC rules impacting award settlement From 28 May 2024, the Securities and Exchange Commission (SEC) will require the standard settlement cycle for most broker-dealer transactions to be shortened from the trade date plus two business days (“T+2”) to the trade date plus one business day (“T+1”). The new rules need to be considered for any settlement of awards involving a sale of US securities to cover taxes in the market.	This is an important process adjustment for companies and administrators operating with relevant securities, and not just in the USA. Canada and Mexico will implement the same changes with effect from 27 May 2024. In addition to the USA, Canada and Mexico, other jurisdictions to watch in this space – with a combination of optional and mandatory tighter timeframes either already in place or being contemplated – include India, China, Australia, the UK and European countries.
Canada	Additional reporting for non-resident trusts On 31 December 2023, new reporting rules came into effect in Canada. These rules affect non-resident trusts, including the employee benefit trusts that many companies use to support their share plans. Impacted companies now need to disclose more information relating to each trustee, beneficiary and settlor of the trust.	Using a non-Canadian trust in connection with share plans in Canada has always been tricky, and it’s now even more important to ensure full compliance with the reporting rules. The due date for the reporting obligation is 90 days after the trust’s year-end. Failure to comply with the reporting requirements can result in penalties determined by reference to the trust’s assets.
China	Preferential tax treatment extended On 22 August 2023, the preferential individual income tax treatment provided for in Circular 164 was officially extended. The popular preferential treatment was due to expire at the end of 2023, but will now continue to apply until the end of 2027.	Good news! However, there are some ongoing caveats. The preferential tax treatment is available for equity-based incentives implemented by a listed company. For a foreign company, the plan will usually have to be registered with the State Administration of Foreign Exchange (SAFE) to benefit. We have assisted many clients with obtaining and maintaining SAFE registration, which can be very difficult to navigate.
India	Tax on outward remittances Following an overhaul of foreign exchange rules in 2022, fund transfers out of India under an employee share plan are now subject to ‘tax collected at source’ (TCS). However, there is a remittance threshold of INR700,000 before this tax applies. The TCS rate was increased from 5% to 20% on 1 October 2023.	This adds a new layer of complexity to contributory plan remittances. On the upside, a last-minute announcement saved the INR700,000 threshold, which had been slated for removal from 1 July 2023. Consequently, TCS (at 20%) will only be withheld if an individual makes outward remittances over INR700,000 in any financial year.
Ireland	Employer withholding for option plans introduced From 1 January 2024, employers are required to withhold income and social taxes on the exercise of awards classified as “share options” under the Irish tax legislation. Previously, the relevant income was declared and tax paid by the employees.	This change should be communicated to employees as soon as possible – please let us know if you would like any assistance with this, or guidance on how to implement the new withholding obligation. We note that it does not apply to approved Save-As-You-Earn (SAYE) or Approved Profit Sharing Schemes.

Country

Regulatory developments

Tapestry comments

Employer tax return filing changes

All employers operating share plans in the UK must submit the relevant employment related securities (ERS) return(s) to HM Revenue & Customs (HMRC) by 6 July following the end of the tax year on 5 April.

In 2023, all of the end-of-year ERS return templates and corresponding guidance notes were reviewed and updated. HMRC also published an ERS bulletin in February 2024 which explained how recent changes to tax-advantaged CSOP and EMI plans would be reflected in the reporting process.

The HMRC registration and reporting process can take some time and there are many important nuances, so we recommend that employers start preparing their return(s) as soon as possible.

Financial penalties automatically apply if a company fails to file its ERS returns by the 6 July deadline, even if no reportable events occurred in the tax year (in this case, a ‘nil return’ should be filed).

Tapestry can assist with staying on top of your employer tax reporting and withholding obligations globally, including ensuring that you have the latest tax and social security rates before key events.

USA

SEC rules impacting award settlement

From 28 May 2024, the Securities and Exchange Commission (SEC) will require the standard settlement cycle for most broker-dealer transactions to be shortened from the trade date plus two business days (“T+2”) to the trade date plus one business day (“T+1”).

The new rules need to be considered for any settlement of awards involving a sale of US securities to cover taxes in the market.

This is an important process adjustment for companies and administrators operating with relevant securities, and not just in the USA. Canada and Mexico will implement the same changes with effect from 27 May 2024.

In addition to the USA, Canada and Mexico, other jurisdictions to watch in this space – with a combination of optional and mandatory tighter timeframes either already in place or being contemplated – include India, China, Australia, the UK and European countries.

Canada

Additional reporting for non-resident trusts

On 31 December 2023, new reporting rules came into effect in Canada. These rules affect non-resident trusts, including the employee benefit trusts that many companies use to support their share plans. Impacted companies now need to disclose more information relating to each trustee, beneficiary and settlor of the trust.

Using a non-Canadian trust in connection with share plans in Canada has always been tricky, and it’s now even more important to ensure full compliance with the reporting rules.

The due date for the reporting obligation is 90 days after the trust’s year-end. Failure to comply with the reporting requirements can result in penalties determined by reference to the trust’s assets.

China

Preferential tax treatment extended

On 22 August 2023, the preferential individual income tax treatment provided for in Circular 164 was officially extended.

The popular preferential treatment was due to expire at the end of 2023, but will now continue to apply until the end of 2027.

Good news! However, there are some ongoing caveats.

The preferential tax treatment is available for equity-based incentives implemented by a listed company. For a foreign company, the plan will usually have to be registered with the State Administration of Foreign Exchange (SAFE) to benefit.

We have assisted many clients with obtaining and maintaining SAFE registration, which can be very difficult to navigate.

India

Tax on outward remittances

Following an overhaul of foreign exchange rules in 2022, fund transfers out of India under an employee share plan are now subject to ‘tax collected at source’ (TCS). However, there is a remittance threshold of INR700,000 before this tax applies.

The TCS rate was increased from 5% to 20% on 1 October 2023.

This adds a new layer of complexity to contributory plan remittances. On the upside, a last-minute announcement saved the INR700,000 threshold, which had been slated for removal from 1 July 2023.

Consequently, TCS (at 20%) will only be withheld if an individual makes outward remittances over INR700,000 in any financial year.

Ireland

Employer withholding for option plans introduced

From 1 January 2024, employers are required to withhold income and social taxes on the exercise of awards classified as “share options” under the Irish tax legislation.

Previously, the relevant income was declared and tax paid by the employees.

This change should be communicated to employees as soon as possible – please let us know if you would like any assistance with this, or guidance on how to implement the new withholding obligation. We note that it does not apply to approved Save-As-You-Earn (SAYE) or Approved Profit Sharing Schemes.

About Tapestry

Tapestry specialises in all aspects of international equity plans, including design and documentation, legal and tax compliance, regulatory filings, employee and payroll tax guides, and assistance with IPOs and other corporate transactions. With clients headquartered in all major jurisdictions, we work with many of the world’s leading public companies on their executive and all-employee plans. Tapestry also has teams focussing on the financial services sector (global remuneration regulations, incentives for fund managers and remuneration governance) and the private sector.

Our online database, OnTap, provides clients with legal and tax compliance information including employee and payroll tax guides for many types of incentive plan in over 150 countries (a short demo video is available here). We maintain OnTap and provide comprehensive advisory work for our clients with the assistance of our global network of specialist lawyers. Our focus is on cost-effective, practical, commercial advice in plain English.

Please contact info@tapestrycompliance.com if you would like to receive our newsletters and alerts on global developments, or to discuss how Tapestry can help your company with its share plan needs.