Paulo Cordeiro de Sousa
It is becoming increasingly common for Macau employees in multinational corporations to be awarded Share Options (also referred to as Stock Options – “SOs”) or Restricted Share Units (also referred to as Restricted Stock Units – “RSUs”) as part of their remuneration package. Different types of plans may be implemented by the employer (or by a group company, notably the parent company). An employee participating in the plan may be granted options, i.e. the right to buy shares at a preferential price after a vesting period, and/or may receive shares that are subject to some restrictions for a defined period of time (e.g. they cannot sell them). Usually, the awarded shares represent the capital of a group company listed on a stock market. Authorities across jurisdictions discuss how to tax these awards such as setting the taxable basis, and the time in which the taxable event is deemed to occur.
Aiming to clarify these issues, the Macau tax bureau addressed this matter in Circular Letter No. 02/DIR/2009, dated 8 January 2009.
Pursuant to the Circular Letter, the income is deemed received by the employee, and thus taxable, when he/she exercises the right to the option and purchases the shares. The tax basis is the difference between the market price of the shares and the amount effectively paid by the employee to purchase them, i.e. the amount borne by the employer, which is treated for tax purposes as employment income. Such income is subject to withholding tax, meaning that the employer is required to deduct at source the amount of Personal Income Tax (“Imposto Profissional”) that the employee is supposed to pay with respect to the exercise of the SOs and/or RSUs.
In addition, the employer is subject to certain disclosure obligations to the Macau tax administration and is notably required to declare information regarding the awards within a certain period (30 days). Such information includes the name of the employer and of the employee, their respective tax numbers, denomination and amount of SOs and/or RSUs granted, the amount an employee is required to pay for the RSUs (if any), the amount an employee is required to pay (if any) to purchase the shares (while exercising his/her rights), the period within which the rights may be exercised, any limitations to the exercise or sale of the shares and/or RSUs, plus any further information deemed relevant. The employer is also required to declare to the Macau tax administration, within 30 days, the exercise of the SOs and/or RSUs (purchase of the relevant shares), and the sale or the waiver of the SOs and/or RSUs by the employee.
Some practical issues, however, require further clarification from the tax administration where the Circular Letter remains silent. For example, if the local employer does not bear the costs of the share scheme, i.e. if the shares are awarded to the employer by a non-resident group company and the local employer does not reimburse the funds outlaid by such group company in the implementation of the plan, how is the local employer supposed to withhold any tax from the amount deemed received by the employee? The employee of a local employer is not legally required to submit annual tax returns – should he/she nevertheless file a tax return for that purpose? The law does not seem to require it. Also, the employer may not even be aware that its employee has exercised his/her SOs or has received shares under the terms of the plan. How is it supposed to declare such information to the tax authority? In any case, it is worth knowing that the income deemed to be received by employees from the implementation of these share schemes is not subject to social security contributions in Macau.
No Comments