Taxation of Employee Shares
Restricted and unrestricted employee shares are taxed upon acquisition (unchanged practice). The employee is subject to income taxes on the difference between the market value of the shares on the date of purchase and the purchase price.
Taxation of Employee Stock Options
Restricted stock options are taxed at exercise (unchanged practice). The employee is taxed on the difference between the fair market value of the underlying shares on the date of exercise and the exercise price.
New The new Act abolishes the taxation of options at grant or at departure as sometimes imposed by the tax authorities in the French speaking cantons.
Restricted Stock Units (RSUs)
RSUs are taxed at vesting (unchanged practice). The employee is taxed on the market value of the underlying shares upon vesting of the RSU.
Import and export of employee stock options and RSUs
New The new Act (and the respective ordinance) also regulates cases where an employee received options/RSUs while living outside Switzerland and thereafter relocated to Switzerland and the options/RSUs are vested (and exercised) in Switzerland (or vice versa). Until now, the tax treatment of imported or exported options/RSUs varied from canton to canton and there was no clear practice.
In the event an employee was not living in Switzerland during the entire period between grant and exercise (for options) / vesting (for RSUs), the new Act provides for a pro-rata taxation proportionate to the time spent in Switzerland of the entire vesting period. The pro-rata taxation is calculated as follows: benefit x (residence time in Switzerland between grant and vesting : entire vesting period).
New In the event an employee is no longer resident in Switzerland when he exercises his options or when his RSUs are vested, the Swiss employer has to withhold the source tax and is responsible for the correct payment of the source tax.
New No "tax treaty requirement": To benefit from the pro-rata taxation on imported options and RSUs it is no longer necessary for the employee to have previously been resident in a country with which Switzerland has concluded a tax treaty.
New No "subject-to-tax condition": The employee can benefit from the pro-rata taxation on imported options and RSUs even if the departure country does not tax (part of) the income resulting from the options/RSUs. Until now (at least in the canton of Zurich), the pro-rata taxation on imported RSUs was only granted if the employee could prove that the remaining portion of the income was effectively taxed in the departure country.
New According to the new Act, the tax authorities have a right to request direct reporting of equity awards, i.e. the employer may have to submit certain information directly to the tax authorities.
However, we have been informed that the tax authorities will probably not make use of this information right away. Therefore, in practice, there will likely be no change to the current reporting with respect to equity awards, i.e. the employer is simply required to report the grant and the income from equity awards on the salary certificate provided to the employees.