Guide

Taxation on ESOP (Southeast Asia Edition)

Estimated reading time:
6
minutes

Key Takeaways

  1. The tables are categorised into 2 sections: For employers and for employees.
  2. Withholding and reporting taxes, and tax deduction are under the “For Employers” section. Being taxed upon exercise or on the sales of exercise, or both are covered in the “For Employees” section.

Definitions

Withholding tax: The employer takes a set amount of money out of an employee's salary and pays it to the government. The money taken is a credit against the employee's annual income tax.

Tax return (Reporting Tax): It is a form filed with a tax authority that reports income, expenses, and other relevant tax information. Tax returns allow taxpayers to calculate their tax liability, schedule tax payments, or request refunds for the overpayment of taxes.

Tax Deduction: It is a deduction that lowers a person's or an organisation's tax liability by lowering their taxable income. They are usually expenses that the taxpayer incurs during the year that can be subtracted from their gross income to figure out how much tax payable.

You should consult a tax advisor for the most updated and more comprehensive information on taxation on ESOP in Southeast Asia.


Malaysia
For Employers For Employees
Taxation
Withholding is necessary unless the employee has opted in writing to remit the tax upon submission of his/her tax return for the relevant year.

Reporting is required i.e. notifying the tax authorities.

For deduction,

If the shares acquired by the employee are newly issued shares, the local subsidiary will not be entitled to claim a deduction for any costs incurred in respect to them.

However, if they are treasury shares of the holding company (offered under the scheme), then the local subsidiary is eligible to claim a special deduction for the costs incurred in acquiring them.* Written agreement recommended.
A taxable benefit from stock options arises on the date the option to acquire shares in a company is exercised.

Amount of benefit accessible to tax is based on (*depends of which of the 2 below is lower):

Market value of share on the date the scheme is exercisable (i.e. that the ESOP was granted)

Market value of share on exercise date

Gains from the sales of the shares by the employee is capital gain and hence will not be taxable

*unless the employee is in the business of buying and selling securities and gains are remitted to Malaysia.
Communication Policy There is no legal requirement for the plan materials to be translated into Bahasa Malaysia except for the written notice required under the PDPA. It is recommended to provide documents in another language other than English if the employee is literate in it.

Indonesia
For Employers For Employees
Taxation
Generally required if:

the subsidiary takes a local tax deduction for reimbursing the parent company and,
the benefits from the option are considered part of the base salary.

For deduction: with a written agreement, reimbursement of the parent company for the cost of the option benefits should allow for the subsidiary to deduct such cost from its income taxes.
If the subsidiary reimburses the parent company for the cost of the option benefits, an employee is taxed on the benefits of the option at exercise.

On the other hand, if there is no reimbursement, any tax on the option benefits is deferred until the shares are sold (just taxed upon sale of shares).

Any gain upon sale will incur capital gains tax.
Communication Policy According to Law No. 24 on Flag, Language, National Emblem, and National Anthem as further implemented by Presidential Regulation No. 63 of 2019 on Use of Indonesian Language, it is required of documents regarding stock plans, especially the award agreements to be executed in Indonesian and English if there is Indonesian party to the agreement.

For more information, click here.


Philippines
For Employers For Employees
Taxation
Withholding and reporting by the Philippines subsidiary are generally not required,

unless the Philippine subsidiary reimburses the parent company for the cost of the benefits.

The Philippine subsidiary is required to pay a fringe benefit tax on option benefits received by non-rank-and-file employees in the subsidiary if,

it reimburses the parent company for the cost of the option benefits.

With a written agreement and adherence to withholding requirements, a Philippine subsidiary’s reimbursement to the parent company for the cost of the benefits will allow the subsidiary to deduct such cost from its income taxes.
The spread is taxable at exercise.

Any gain upon the sale of shares is taxable.
Communication Policy Documents on employee stock plans may be in English and there exist no legal requirement for such documents to be translated. Any filing with the government may be, and is often in English.

For more information, click here or here.

Thailand
For Employers For Employees
Taxation
Withholding and reporting are generally not required,

unless the subsidiary reimburses the parent company for the cost of the benefits.

Tax deduction is presumably available to a certain monetary threshold if the Thai subsidiary reimburses the parent company for costs of the award, and certain other requirements are met, i.e.

Board of directors of the subsidiary approves reimbursement and,

the subsidiary observes exchange control requirements.
The spread is taxed upon exercise.

Any gain from the sale of the shares is taxable if repatriated in the same calendar year as the sale by a Thai tax resident for that year.
Communication Policy It is not legally required, but recommended that supporting documents on employee option plans be translated. Any filings of official forms with the government need to be in Thai.

Vietnam
For Employers For Employees
Taxation
Withholding and reporting of income tax are generally required by implementing entities, at purchase.

On tax deduction: Due to foreign exchange restrictions, it is unlikely for the Vietnam subsidiary to make reimbursements to the parent company.
The spread is generally taxed at exercise.

Any gain from the sale of the shares is generally taxable.
Communication Policy It is not legally required, but recommended that supporting documents on employee option plans be translated. Any filings with the SBV and other competent authorities need to be in Vietnamese.

References:

https://www.dlapiperintelligence.com/goingglobal/global-equity/index.html?t=stock-options&s=03-tax 

https://joolah.my/esos-income-tax-declaration/