Newsletter
TAX TREATMENT OF SUBSCRIPTION BY EMPLOYEES OF SHARES NEWLY ISSUED FOR INCREASE IN CAPITAL BY CASH
On 10 July 2008, the Ministry of Finance issued two rulings on the tax treatment by a company and its employees of the employees' subscription of the shares that the company issues due to an increase in capital by cash injection, and sets aside for subscription by its employees pursuant to Article 267 of the Company Act.
‧Tax Treatment by Company
The company should follow the same rules for reporting salary expense for issuing employee stock warrants. In preparing the business income tax return for a tax year in which its employees have subscribed to newly issued shares as described above, the company should calculated the cost of issuing the shares subscribed by its employees on the basis of fair value or intrinsic value, and declare the cost as salary expense for the tax year concerned. If the calculation of the cost of issuing said shares is based on intrinsic value, the amount of any change in intrinsic value should be entered in the profit and loss account for the year in which the change occurs.
‧Tax Treatment by Employees
If and when the market value of the shares subscribed by an employee is greater than the subscription price on the date of acquisition, the employee should treat the difference as "other income" (Item 10, Paragraph 1, Article 14 of the Income Tax Act) and include it in calculating his/her taxable income for the year of subscribing such shares. In addition, according to Paragraph 3, Article 89 of the Income Tax Act, the company should report such "other income " to the tax authorities, and issue a non-withholding tax statement to the employee. If the price at which an employee subscribed the shares is below the market value of such shares on the date of acquisition, the employee would not be deemed to have generated any income from such subscription.