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Equity-based incentives

Share options

What are the most common types of share option plan in your jurisdiction? Please outline the rules relating to each scheme.

Swiss law does not provide for specific types of share option plan. Thus, each share option plan contains its own features, which depend on the size of the company (eg, small and medium-sized enterprises or multinationals) or the beneficiaries of the plan (eg, top-tier management or mid or low-level employees).

Typically, in a share option plan, qualified employees are entitled to buy a certain number of shares at a particular price (which can be lower than actual market value) or for free. Employees can exercise their options within a defined period. Moreover, options may be blocked for a certain period during which employees cannot exercise their rights.

What are the tax considerations for share option plans?

Depending on the way that options are granted to employees, such a grant may be considered taxable income.

If the employees' shares are granted free of charge or on preferential terms, the positive difference between the market value and the attribution price to the employees constitutes a tangible financial advantage and is thus considered taxable income.

The Federal Act on Taxation of Share Option Plans entered into force on January 1 2013. It distinguishes between:

  • non-tradable or unlisted options, which are taxed when the right of acquisition is exercised; and
  • tradable and publicly traded options, which are taxed at the time of the grant to the employee.

Blocked shares may present a loss of value. This feature is taken into account by granting a 6% discount per blocking year, up to a maximum of 10 years.

Share acquisition and purchase plans

What are the most common types of share acquisition and purchase plan in your jurisdiction? Please outline the rules relating to each scheme.

Most Swiss share acquisition and purchase plans offer the possibility for qualified employees to buy shares at a discounted price or to receive free shares. Such shares are generally blocked for a certain period during which employees cannot trade them.

What are the tax considerations for share acquisition and purchase plans?

The difference between the selling price and the fair market value of the shares is taxed when the shares are acquired by the employee. If a share cannot be sold by the employee once he or she buys it (ie, blocked shares), a tax discount of 6% per annum (up to 10 years and 44.161%) is conceded. 

The market value of private companies’ shares must be determined by the employer. If the calculation is modified before the sale of the shares, the amount earned because of the change will be taxed as income. However, some Swiss cantons have special taxation rules.

Phantom (ie, cash-settled) share plans

What are the most common types of phantom share plan used in your jurisdiction? Please outline the rules relating to each scheme.

Most Swiss phantom share plans offer qualified employees the possibility to buy phantom shares that reflect the progression of the company’s shares. Phantom shares do not provide voting rights or dividends (although the employer usually gives some cash to phantom-share detainers in proportion to the number of normal shares). Phantom shares cannot be traded, only sold back to the company, which normally buys them at market value.

What are the tax considerations for phantom share plans?

Employees pay tax when the phantom shares are sold back to the company, not when they are granted. Phantom shares held by the employee are not subject to wealth tax.

Consultation

Are companies required to consult with employee unions or representative bodies before launching an employee share plan?

In principle, there is no obligation for companies to consult with employee unions or representative bodies in relation to an employee share plan.

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