Tax Alert, July 2019

On 12 July 2019, Minister of finance has issued Rulebook on tax exemption from salary tax with respect to the acquisition of free shares received from the employer or employer’s related entity which more closely defines application of the Article 18 paragraph 1 (11) and 2 of the Personal Income Tax Law, which provides for exemption from salary tax of free shares.

Rulebook will enter into force on 20 July 2019.

Namely, in order for the taxpayer to apply tax exemption, following conditions need to be complied with:

1.    Basis, manner and condition for acquiring free shares would need to be regulated by the General act, employment contract or other act of the employer or employer related entity such as free share incentive plan and similar;

2.    Acquisition date, quantitative and qualitative elements need to defined by documents in a way that provides certainty;

3.    Employee has not alienated free shares within 2 years from the moment of acquisition of full rights on shares;

4.    Employer or employers related entity have not redeemed the free shares;

5.    Employment relationship has not ended within 2 years from the moment of the free share acquisition.  

Fulfillment of above stated conditions is documented in the following way:

1.    Condition from the point 3 – by written statement given under oath by the employee and appropriate document from the electronic data base of domestic or international regulated stock market;

2.    Condition from the point 4  – by written statement given under oath by the legal representative of the employer, unless the employee is obliged to report income and pay salary tax in which case employee gives such statement;

3.    Condition from the point 5 – by employment contract, CROSO system certificate, or if the employment relationship has ended with the documentation that proves the basis for termination of employment;

Statement from the employee (condition from point 3) as well as evidence regarding the employment status of the employee need to be prepared by the person obliged to calculate and report the salary tax, at the last day of the second year since the moment the employee has acquired the full ownership rights on the share, and is provided at the request of the competent tax authority. Statement of the employer, or the employee, that the shares were not redeemed by employer or employer’s related entity is provided at the request of the competent tax authority.