To retain staff or as an additional incentive, employers choose to grant employees share options.
Pay
The Payroll Tax Act is clear: “Wages are everything received from an employment relationship …”. Pay tax must therefore also be paid on the value of an employee share option. The employer declares the payroll tax and pays it to the tax authorities. However, the basic principle is that the tax is recovered from the employee. If this does not happen, the payroll tax is treated as part of the employee’s pay (and must be included in the gross pay).
To make the granting of employee share options more attractive, the date on which payroll tax becomes payable has been adjusted with effect from 2023.
Taxable moment
Up to and including 2022, payroll tax must be paid at the time the option is exercised or disposed of. The option is exercised when the employee chooses to exchange the option for the shares. However, at that point, the employee often does not have the funds to pay the income tax due.
That is why the chargeable event in the case of exercise for options, with effect from 2023, has been deferred to the point at which the shares acquired under the option become tradable. This is the point at which the employee has the option to dispose of the shares, regardless of whether they actually sell them. By selling (some of) the shares, the employee can obtain the funds needed to help pay the income tax due. Tax is levied on the market value of the shares at the time they become tradable.
The tax assessment date is not deferred if the employee exercises the options alienates because the payroll tax can then be paid from the proceeds received for the options. Tax is then levied on the gain realised on disposal.
Exceptions to the general rule
The employee has the option to deviate from the general rule. If the shares are not yet tradable at the time the option is exercised, settlement may nevertheless take place at that time. The taxable remuneration is then determined on the basis of the market value of the shares at the time the option rights are exercised. That value may, of course, be lower than the value at the time the shares become tradable, but on the other hand, the income tax must be paid earlier. An employee who wishes to deviate from the general rule must notify the employer of this choice in writing.