Ecovis in Australia

Why Should You Implement an Employee Share Option Plan?

27.10.2021

A share option programme is a long-term solution for finding and retaining employees. Employee participation programmes are a great way to create targeted incentives, often in a tax-efficient manner, and to encourage employee engagement.

Employers often compete aggressively for the best talent: they pay higher salaries, offer teleworking, discounted meals, and many other often short-lived incentives. Employee participation programmes are designed for the long term and are particularly beneficial for start-ups. For them these programmes can be one of the main ways to attract the best talents while maintaining their loyalty and motivation.

What is a Share Option?

A share option is the right to buy, at some point in the future, a certain number of shares in a company at a fixed price. The employer can make the granting and exercising of share options dependent on certain targets, such as performance indicators or sales targets. This means that an employee will have the right to exercise their share options provided that the set targets are met at the agreed rate for that period.

Employee development with share programmes is also often chosen by FinTech companies. Although options are particularly popular as a means of promotion abroad, more and more Lithuanian companies are also discovering them. ECOVIS ProventusLaw’s partners also have such examples among FinTech customers, who often decide to first reward employees who work longer or hold higher positions.

We can advise you if you wish to set up and implement a share option programme for employees.

Loreta Andziulytė, Attorney at Law, Partner, ECOVIS ProventusLaw, Vilnius, Lithuania

What are the Benefits of Share Options for the Employer and the Employee?

Employers who already offer employee share options see increased employee loyalty and a more active contribution to the company’s success. Many international examples show that it is one of the best tools for building a motivated team, explain the Ecovis experts.

Some companies choose to offer share options to key employees, ensuring that the company’s strategy is executed by a team that has a long-standing history with the company, while others offer share options to all employees. The common goal of both sides of the share option agreement is to motivate the employee to take a long-term approach, thus increasing the value of the employer as a company and aligning the interests of the parties.

The share options are of a purely personal nature. They are inextricably linked to the employee of the specific company. The company is keen to keep the employment relationship as long as possible and, therefore, a crucial condition is usually to set out a long term after which the employees may exercise their right to acquire the shares in the company.

For further information please contact:

Loreta Andziulytė, Attorney at Law, Partner, ECOVIS ProventusLaw, Vilnius, Lithuania
Email: loreta.andziulyte@ecovisproventuslaw.com

Milda Šlekytė, Senior Associate, ECOVIS ProventusLaw, Vilnius, Lithuania
Email: milda.slekyte@proventuslaw.lt

Cross Border Remote Work Considerations outside the US

07.10.2021

If employers send employees abroad, or if they wish to work in a country other than the USA, various tax and non-tax details, such as health insurance or social benefit programmes, must be checked. In addition, the employer must pay close attention that the work of the employee does not become a permanent establishment and thus create tax liability for the company.

In workplace environments that must now include COVID-19 remote work arrangements as well as specific employee’s alternative work arrangements, employers need to understand the tax consequences of employees working in another state or a foreign country. The remote work arrangements may be requested by the employee for personal reasons, where the employee will be responsible for his/her personal tax requirements. Where the relocation is for the benefit of the employer, the employer will accept the consequences and costs of the assignment. However, the employer must be aware of the potential additional obligations and costs it may face when approving an employee-requested remote workplace outside the US, explain the consultants from Marcum LLP*.

The Tax and Non-Tax Consequences of Relocation

While the foreign remote work location places additional tax burdens and costs on employees, most of these will not affect the employer (as would be the case if the employer required relocation). The employer may still be subject to additional requirements and costs to comply with local country rules for having their employee working in the foreign country, including income tax withholding requirements, employer payroll taxes, and registration requirements (for withholding and remitting taxes under the local country rules). Non-tax considerations may include the provision of health coverage outside the United States, immigration requirements, or other employee benefit programs in the affected countries.

In the case of relocation, check carefully whether this involves the setting up of a permanent establishment.

Douglas Nakajima, International Tax Co-Leader, Marcum LLP*, Philadelphia, USA

Avoiding a Permanent Establishment

The employer should ensure that the employee working outside of the US does not raise Permanent Establishment (PE) exposure for the employer. Generally, the PE standard is what allows the foreign country to impose income taxes on any business profits asserted to be associated with the US employer’s business activity in that country. A PE may be a fixed place of business or a place of management, an office, or an employee with the authority to conclude contracts. If the employee serves as an officer of the company, performing his/her designated management duties, there is a stronger argument for the finding of a PE in that country.

As the employer will not provide the employee with an office in the employee-requested arrangement, the place of business is unlikely to be an issue, However, as the employee may be a company officer with the authority to conclude contracts, and he/she may be expected to continue to exercise authority on a regular basis, a PE exposure may be raised. Removing or limiting the employee’s title and role can strengthen a position that there is no PE. Tax treaties with the US may provide exceptions where, despite the maintenance of a fixed place of business, there is no PE. This exposure needs to be reviewed.

Although employers may want to retain employees seeking a foreign remote workplace, before approving the arrangement, the potential tax consequences must be understood, and a clear written understanding of the respective costs and obligations raised

For further information please contact:

Douglas Nakajima, International Tax Co-Leader, Marcum LLP*, Philadelphia, USA
Email: douglas.nakajima@marcumllp.com

* Marcum LLP is the exclusive associated partner of ECOVIS International for accounting, tax and audit in the United States of America.

Branch Office Taxation: Establishment and Operation in Croatia

06.10.2021

The OECD model convention for the avoidance of double taxation defines the conditions for establishing a business unit. Company law in Croatia regulates the establishment procedure and tax monitoring for companies from non-EU or non-EEA countries when they open a branch office.

Doing business in more than one country through some form of business unit is an increasingly common business model for many foreign companies seeking to expand their markets and, as a result, achieve more profit.

Establishing a Branch Office

The Company Act sets out the procedure for the establishment and registration of a branch office of a foreign company/sole proprietor. Under the provisions of the act, an entity established in a non-EU or non-EEA country may only establish a branch office in Croatia if it has been registered in the country of its registered office for at least two years. The basic act of establishing a branch office includes a notarised decision on the establishment, as well as the application for the registration of a branch office which, among others, defines the company, the registered office of the founder and the subsidiary, subject matter/activity, authorised representatives etc., explain the Ecovis experts.

We will clarify the individual procedural steps and the tax consequences with you when you set up a branch office in Croatia.

Kristijan Novak, Head of Accounting, ECOVIS FINUM, Zagreb, Croatia

Business Records and Taxation

The obligation to keep business records and to record the resulting business changes is defined in the Accounting Act and the General Tax Law. Together with the accounting standards, these form the basis for determining the business performance in the reporting period and for the preparation of financial statements for public disclosure and income tax declaration. Subsidiaries of foreign companies whose founder is established in the EU/EEA must submit the accounting documentation of the founder in Croatian with a certified translation, while other subsidiaries (whose founder is established in a third country) must submit all the documentation prescribed by law. If their delivery of goods and services exceeds HRK 300,000 (approx. EUR 40,000) in the previous or current calendar year, they are also liable to pay value added tax, notwithstanding the fact that subsidiaries of foreign companies do not have legal personality.

For further information please contact:

Kristijan Novak, Head of Accounting, ECOVIS FINUM, Zagreb, Croatia,
Email: k.novak@finum.hr