Many technology industries and startup companies attract employees by implementing shares subscription. Currently, here are 5 kinds of remuneration measures for Taiwan employees as enacted in Company Act: 1. Remuneration stocks, 2. shares subscription and capital increase by cash, 3. Distributing buybacks, 4. Shares subscription certificate, 5. Restriction of shares subscription. Kindly remind that the other incomes of employees can be exempted after reaching the terms and obtain the stocks, but the company shall declare this fact to Taxation Bureau in accordance with Income Tax Act.
For employees who subscribed the shares by cash, the employee don’t have to combine it into the individual income tax upon the date of subscription in accordance with Income Tax Act, but upon the date of disposal (or stock option execution date) must exceed the subscription (or stock option exercise price) at the current price on that day The difference is taxed as other income. However, if the disposable current price is lower than the subscription price, the full amount will be exempted from tax.
When the company issues new shares with restricted employee rights in accordance with Article 267, Item 9 of the Company Law, the restricted rights will be restricted before the employees are allocated or subscribed for new shares and have not met the vested conditions (usually service years or performance conditions) as stipulated in the issuance method. If it belongs to the transfer right of stock, and the report becomes effective in accordance with the issuer’s offering and issuance of securities, the “date when the acquired condition is fulfilled” shall be regarded as the disposable date, and the difference between the current price of the target stock on the disposable date and the subscription price shall be determined. Part of the other income that falls under category 10, Item 1, Article 14 of the Taiwan Income Tax Law shall be calculated as employee income for the current year.
The above-mentioned “date of fulfillment of the vested conditions” depends on the method of custody or trust custody during the acquisition of new shares that restricts the rights of employees. The date when the new shares are recorded; if the rights of employees are restricted and the new shares are purchased by a trust custodian, it is the date when the trustee allocates the shares to the employee’s account.
For example, Company A issued new shares with restricted employee rights in 2020. Employee Mr. A subscribed for 10,000 shares at NT$20 per share (hereinafter the same). Company A and Mr. A agreed to continue to serve in Company A for three years. Mr. A fulfills the vested condition in 2023, and the current stock price on the date of achievement is 60 yuan per share, so Mr. A should include the subscription income in other income in 2023 as 400,000 yuan [(60 yuan – 20 yuan) × 10,000 shares ].
In addition, if the company distributes reward stocks to employees, it belongs to small and medium-sized enterprises (those that comply with the regulations on the development of small and medium-sized enterprises) and must declare within 30 days from the day after the transfer and transfer; Or report to the National Taxation Bureau before January 31 of the year following the year of account transfer (or the year when the deferment period expires).
According to the “Regulations on Industry and Innovation”, if the employee reward stock is to be eligible for the class deferment discount, it includes the company issuing 1. Remuneration stocks, 2. shares subscription and capital increase by cash, 3. Distributing buybacks, 4. Shares subscription certificate, 5. Restriction of shares subscription must be declared by the company before employees can choose to apply.
For example, if Company A issues employee stock option certificates and provides employees with preferential prices to subscribe for stocks, but Company A has not applied for the discount for class deferment, so employees cannot choose to defer classes when they receive stock. The difference between the subscription price and the subscription price” is recognized as income tax.