EMPLOYEE STOCK PURCHASE PLANS

EMPLOYEE STOCK PURCHASE PLANS: EMPLOYMENT

Labor Concerns

There is a risk that benefits under a stock purchase plan could be viewed as a part of the employee's salary and taken into account when determining damages payable to an employee upon unlawful termination. To mitigate this risk, the employee should acknowledge in writing that the Plan and any benefits thereunder are provided solely at the discretion of the company.

In order to avoid any allegations of discrimination and unfair treatment, participation in the Plan should be offered on the basis of the application of objective criteria.

Communications

The translation of Plan documents for employees is recommended but is not legally required unless the Plan is a tax-compliant employee stock purchase plan under the Income Tax Act, 1961. In which case, if the Plan documents are in any language other than English, English translations must be provided. Government filings must be in English.

EMPLOYEE STOCK PURCHASE PLANS: REGULATORY

Securities Compliance

It should not be necessary to file a prospectus in relation to the Plan in India.

Foreign Exchange

Under the Liberalised Remittance Scheme, resident individuals may invest up to US$250,000 per financial year (April-March).

Otherwise, a person resident in India, being an individual who is an employee or a director of an Indian Subsidiary, either directly or indirectly (through a special purpose vehicle, trust or a step down subsidiary), may purchase equity shares offered by a foreign company. Authorised dealer banks in India are permitted to allow remittances for the purchase of Stock under the Plan provided that the Stock under the Plan is offered globally on a uniform basis, and an annual return is submitted by the Indian Subsidiary to the RBI through the authorized dealer bank disclosing certain details.

A person resident in India may sell Stock acquired under the Plan if the sale proceeds are repatriated immediately and in any case not later than 90 days from the date of such sale.

Data Protection

It is recommended that employers disclose their data processing activities to employees. It is further recommended that an employer (i) obtains an employee's prior written consent for the collection, use and transfer of his or her personal data outside of India; and (ii) reserves, in the employee contracts, the right to transfer information contained in the database to related companies or to a third-party plan administrator.

EMPLOYEE STOCK PURCHASE PLANS: TAX

Employee Tax Treatment

Options granted under the Plan are taxable on the date of exercise and the amount due is calculated on the difference between the Fair Market Value ("FMV") of the shares on the date of exercise and the exercise price.

Any subsequent sale of shares by employees would trigger a capital gains tax liability.

A corporation tax deduction may be available if the Indian Subsidiary reimburses the Issuer for the cost of the award. Further, local companies may be entitled to claim a deductible expense (comprising staff welfare expenditure) on the difference between market price and the price paid on exercise. However, in the absence of any specific provision in the Income Tax Act, 1961, there is no certainty that such a claim would be permitted by the relevant authorities.

Social Insurance Contributions

Benefits received under the Plan are not subject to social insurance contributions.

Tax Favored Program

If the employee holds the Stock for a minimum period (12 months in the case of the securities listed on the recognized stock exchange and 24 months in the case of unlisted shares) from the date of allotment or transfer of such security or shares, more favorable capital gains tax rates apply.

Withholding and Reporting

Gains arising on the acquisition of Stock under the Plan should be included by employers as part of the salary income and the relevant amount of tax arising on the aggregate amount should be withheld by the employer. The requirement to withhold tax also applies to non-residents if the income of the recipient non-resident is chargeable to tax in India.

Tax Rates

Income tax is charged at marginal rates (up to 30%). An income tax surcharge at the rate of 15 percent of income-tax will be levied where the total income of an individual exceeds INR 10 million.

Social taxes (i.e., education cess and secondary and higher education cess) are levied on the employee at a rate of 3% of the income tax due.

Any gain made on the sale of shares is taxed as capital gains (subject to either Long Term Capital Gains or Short Term Capital Gains, depending upon the period of holding of the capital asset).

RESTRICTED STOCK and RSUs

RESTRICTED STOCK and RSUs: EMPLOYMENT

Labor Concerns

There is a risk that benefits under a restricted stock or RSU plan could be viewed as part of the employee's salary and taken into account when determining damages to be paid to an employee upon unlawful termination. To mitigate this risk, the employee should acknowledge in writing that the Plan and any benefits thereunder are provided at the sole discretion of the company.

In order to avoid any allegations of discrimination and unfair treatment, participation in the Plan should be offered on the basis of the application of objective criteria.

Communications

The translation of Plan documents is recommended, but not legally required, unless the Plan is a tax-favored ESOP scheme – in which case, if the Plan documents are in any language other than English, English translations must be provided. Government filings must be in English.

RESTRICTED STOCK and RSUs: REGULATORY

Securities Compliance

It should not be necessary to file a prospectus in relation to the Plan in India.

Foreign Exchange

Given that no funds are typically required to be paid by Participants in relation to the grant of restricted stock or RSU awards, foreign exchange requirements generally do not apply in these circumstances and such Stock or awards may be acquired by resident individuals without any prior approval of the Reserve Bank of India ("RBI").

In any event, under the Liberalised Remittance Scheme, Indian resident individuals may invest up to US$250,000 per financial year (April-March).

Otherwise, a person resident in India, being an individual who is an employee or a director of an Indian Subsidiary, either directly or indirectly (through a special purpose vehicle, trust or a step down subsidiary), is permitted to acquire foreign securities under a Plan without any monetary limit. They are also permitted to freely sell the shares provided the proceeds thereof are repatriated to India immediately and in any case not later than 90 days from the date of such sale. However, the Indian Subsidiary will need to file an annual return to the RBI through the authorized dealer (bank) disclosing certain details.

Data Protection

It is recommended that employers disclose their data processing activities to employees. It is further recommended that an employer (i) obtains an employee's prior written consent for the collection, use, and transfer of his or her personal data outside of India; and (ii) reserves, in the employee contracts, the right to transfer information contained in the database to related companies or to a third-party plan administrator.

RESTRICTED STOCK and RSUs: TAX

Employee Tax Treatment

Each employee's stock rights are taxable on either (i) the date of acquisition (in relation to restricted stock), or (ii) the date of vesting (in the case of RSUs), calculated by reference to the difference between the Fair Market Value ("FMV") of the shares on the date of acquisition/vesting (whichever is applicable) and the acquisition price if any.

Any subsequent sale of shares by employees would trigger a capital gains tax liability.

A corporation tax deduction may be available if the Indian Subsidiary reimburses the Issuer for the cost of the award. Further, local companies may be entitled to claim a deductible expense (comprising staff welfare expenditure) on the difference between market price and the price paid on exercise. However, in the absence of any specific provision in the Income Tax Act, 1961, there is no certainty that such a claim would be permitted by the relevant authorities.

Social Insurance Contributions

Benefits received under the Plan are not subject to social insurance.

Tax Favored Program

If the employee holds the underlying Stock for a minimum period (12 months in the case of the securities listed on a recognized stock exchange and 24 months in the case of unlisted shares) from the date of allotment or transfer of such security or shares, more favorable capital gains tax rates apply.

Withholding and Reporting

Gains arising on the acquisition of restricted stock, and on the vesting of RSUs, should be included by employers as part of the salary income and the relevant amount of tax arising on the aggregate amount should be withheld by the employer. The requirement to withhold taxes also applies in respect of non-residents if the income of recipient non-resident is chargeable to tax in India

Tax Rates

Income tax is charged at marginal rates (up to 30%). An income tax surcharge at the rate of 15 percent of income-tax will be levied where the total income of an individual exceeds INR 10 million.

Social taxes (i.e., education cess and secondary and higher education cess) are levied on the employee at a rate of 3% of the income tax due.

Any gain made on the sale of shares is taxed as capital gains (taxable as either Long Term Capital Gains or Short Term Capital Gains, depending upon the period of holding of the capital asset).

STOCK OPTIONS PLANS

STOCK OPTIONS PLANS: EMPLOYMENT

Labor Concerns

There is a risk that benefits under a stock option plan could be viewed as part of the employee's salary and taken into account when determining damages payable to the employee upon unlawful termination. To mitigate this risk, the employee should acknowledge in writing that the Plan and any benefits thereunder are provided solely at the discretion of the company.

In order to avoid any allegations of discrimination and unfair treatment, participation in the Plan should be offered on the basis of the application of objective criteria.

Communications

The translation of Plan documents for employees is recommended but not legally required unless the Plan is a tax-compliant option plan under the Income Tax Act (1961).In which case, if the Plan documents are in any language other than English, an English translation must be provided. Government filings must be in English.

STOCK OPTIONS PLANS: REGULATORY

Securities Compliance

It should not be necessary to file a prospectus in relation to the Plan in India.

Foreign Exchange

Foreign exchange requirements generally do not apply where funds are not transferred on the exercise of options under the Plan and as such the resulting Stock may be acquired by resident individuals without any prior approval of the Reserve Bank of India ("RBI").

Under the Liberalised Remittance Scheme, Indian resident individuals may invest up to US$250,000 per financial year (April-March).

Otherwise, a person resident in India, being an individual who is an employee or a director of an Indian Subsidiary, either directly or indirectly (through a special purpose vehicle, trust or a step down subsidiary), may purchase equity shares offered by a foreign company. Authorised dealer banks in India are permitted to allow remittances (without any monetary limit) for the purchase of Stock under the Plan, provided that Stock under the Plan is offered globally on a uniform basis, and an annual return is submitted by the Indian company to the RBI through the authorized dealer bank disclosing certain details.

A person resident in India may sell Stock acquired under the Plan if the sale proceeds are repatriated immediately and in any case not later than 90 days from the date of such sale.

Data Protection

It is recommended that employers disclose their data processing activities to employees. It is further recommended that an employer (i) obtains an employee's prior written consent for the collection, use and transfer of his or her personal data outside of India; and (ii) reserves, in the employee contracts, the right to transfer information contained in the database to related companies or to a third-party plan administrator.

STOCK OPTIONS PLANS: TAX

Employee Tax Treatment

Options granted under the Plan are taxable on the date of exercise and the amount due is calculated on the difference between the Fair Market Value ("FMV") of the shares on the date of exercise and the exercise price.

Any subsequent sale of shares by employees would trigger a capital gains tax liability.

A corporation tax deduction may be available if the Indian Subsidiary reimburses the Issuer for the cost of the award. Further, local companies may be entitled to claim a deductible expense (comprising staff welfare expenditure) on the difference between market price and the price paid on exercise. However, in the absence of any specific provision in the Income Tax Act, 1961, there is no certainty that such a claim would be permitted by the relevant authorities.

Social Insurance Contributions

Benefits received under the Plan are not subject to social insurance contributions.

Tax Favored Program

If the employee holds the Stock for a minimum period (12 months in the case of the securities listed on a recognized stock exchange and 24 months in the case of unlisted shares) from the date of allotment or transfer of such security or shares, more favorable capital gains tax rates apply.

Withholding and Reporting

Gains arising on the exercise of options under the Plan should be included by employers as part of the salary income and the relevant amount of tax arising on the aggregate amount should be withheld by the employer. The requirement to withhold taxes also applies to non-residents if the income of the recipient non-resident is chargeable to tax in India.

Tax Rates

Income tax is charged at marginal rates (up to 30%). An income tax surcharge at the rate of 15 percent of income-tax will be levied where the total income of an individual exceeds INR 10 million.

Social taxes (i.e., education cess and secondary and higher education cess) are levied on the employee at a rate of 3% of the income tax due.

Any gain made on the sale of shares is taxed as capital gains (subject to either Long Term Capital Gains or Short Term Capital Gains, depending upon the period of holding of the capital asset).