For example, stock options granted with an exercise price less than the fair market value of the underlying stock at the time of grant are subject to A treatment in the U. The company must complete a A valuation — a formal report that sets the current value of a company's stock and the price to purchase that stock — to ensure the option does not result in punitive taxation.
In Canada, equity incentives such as restricted stock awards RSAs , restricted stock units RSUs , stock appreciation rights SARs and phantom stock plans may be subject to salary deferral rules. For example, an RSA would fall into this category if the vesting period exceeds three years.
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This means that the income must be taxed on a current basis regardless of when the income is actually paid, effectively negating the tax deferral. A trap for Canadian taxpayers holding U. In the U. In Canada, however, income is recognized at the time of grant. The difference in the timing of taxable events between the two countries can result in a double-tax situation where the use of foreign tax credits isn't possible.
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Independent contractors who must file Canadian and U. It allows for income from RSAs to be recognized at the time of grant, matching the Canadian treatment and timing. Overall, receiving equity awards as part of a business transaction is not a recommended tax strategy. The implications are even worse for incorporated contractors.
Sweden | New tax-advantaged employee share options - Osborne Clarke | Osborne Clarke
Formal compensation plans should always consider the risk incurred by the contractor in the form of a risk premium i. While the contractor could experience a windfall when the options are vested, one could also have a shortfall. Finally, while all this highlights tax consequences for the independent contractor, the issuing company i.
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Sweden | New tax-advantaged employee share options
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We're here to help you negotiate the legal challenges you'll face as our cities change. The Swedish government has set out new rules for small and early-stage companies to promote the recruitment and retention of key employees. The new rules are intended to reduce the tax burden for both the employee and the employer.
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Employees holding the new share options will, if the requirements under these new rules are satisfied and structured correctly, be subject to capital gains tax rather than income tax. In addition, no social security charges will be payable by the employing entity in respect of the options. In order for options to qualify under the new rules, several requirements need to be fulfilled. In summary:.