Swiss-American Chamber of Commerce Tax Efficient Compensation* 21 September 2010

Transcription

1 Swiss-American Chamber of Commerce * 21 September 2010 *connectedthinking PwC

2 Agenda/Contents General Taxation Rules Remuneration Structuring Special Expatriate Remuneration Across the Border Summary

3 General Taxation Rules General Taxation Rules Any remuneration paid as part of the employment contract is primarily considered taxable employment income. Fringe Benefits are generally also considered employment income and are therefore taxable at their respective fair market value. Expenses paid/reimbursed by the employer are not considered employment income as long as they are not covering cost of living of the employee. Slide 3

4 Total Compensation Base Salary Bonus Fringe Benefits Equity Fixed remuneration element (represents the market value of the function) Short Term Incentive: Retrospective (cash payment pay for performance) Fringe Benefits (allowances, company car etc.) Long Term Incentive: Prospective (Shares, Options, Phantom Plans, etc.) 5 Occupational Pension Fund, Old-age Insurance Benefits Slide 4

5 Base Salary/Bonus Cash compensation is taxable income. No tax optimization available. Slide 5

6 Fringe Benefits Lump-sum Expenses Reimbursement of business related expenses is not considered taxable income. The same principle applies if expenses are reimbursed as a fixed monthly lump-sum instead of actual amounts per incurrence. Annual/monthly lump-sum payments - amount depends on rank, function and salary level - Range accepted is between CHF 6,000 and 24,000 p.a. (Geneva up to CHF ) Expenses up to CHF 50 per item can no longer be claimed. A formal expense ruling with the authorities is required. Slide 6

7 Fringe Benefits Company Car A company car is the typical benefit given to employees resulting in a tax benefit as only the private use of the car is considered a taxable benefit. Benefit is calculated as 0.8% per month of purchase price (for income tax and social security purpose). Different models are possible to capture special circumstances. Commuting expenses are no longer deductible. Intense private use and/or necessity of a (second) car results in financial benefit. Company pays all costs (car, maintenance, insurance, road taxes, gas). Employee only pays gas during vacation trips. Slide 7

8 Fringe Benefits Company Car Example - Car: CHF 80,000; 23,000 km p.a.; 5,000 km for business; 10,000 km commuting; 8,000 km other personal use - Taxable benefit: CHF x 9.6% = CHF 7,680 - Loss of commuter deduction: CHF 6,500 - Increase in taxable income: CHF 14,180 - Taxes (income taxes: 30%): CHF 4,254 = actual cost to employee - Costs per km (commuting and personal use): CHF 0.24 Slide 8

9 Other Fringe Benefits The employer may provide additional benefits to employees to differentiate itself from other employers. Generally, such fringe benefits are taxable income, especially if paid in cash or can be quantified otherwise: Premiums for length of service; Beneficial health insurance premiums or other insurances; General Abonnement; Costs for professional training (further education); Leisure activities; In-house gym; In-house legal/tax consulting. Slide 9

10 Other Fringe Benefits Some Fringe Benefits are per definition not to be reported as salary: Train Half-price card (CHF 150); REKA Checks (up to CHF 600); Usual presents for birthday, Christmas (up to CHF 500); Private use of tools; Membership fees (up to CHF 1,000 per membership); Discounts when purchasing goods if customary within an industry; Tickets for cultural events (up to CHF 500); Travel costs for spouse/partner on business trips; Sponsored day nursery; Airline miles. Slide 10

11 Equity Shares Free Shares Employee becomes shareholder; No restriction regarding sale of shares; Taxed at grant; Taxable value: fair market value (FMV). Restricted Shares Employee becomes shareholder; Sales restrictions attached (blocking period); Taxed at grant; Taxable value: FMV discounted by 6% for each fully blocked year. Slide 11

12 Equity Stock Options, RSUs, SARs etc. Employee does not receive an irrevocable right at grant (deferred benefit), as the realization of the benefit is subject to (future) conditions, e.g. continued employment, performance etc. No taxation at grant as taxation is deferred until conditions are met (vesting) or until the employee acts (e.g. exercises options). Taxable income Stock Options: FMV option costs (strike price); RSUs: FMV; SAR: Cash payment to employee; If thereafter shares are blocked, a discount of 6% p.a. applies. Slide 12

13 Equity Stock Options, RSUs, SARs etc. Any further gains (losses) after the taxable moment are no longer triggering income tax consequences as private capital gains are tax free. Taxation of options, RSUs, SARs etc, which have been granted abroad may be subject to different taxation rules. Respective plan rules differ substantially and actual tax consequences need to be analysed in each case and maybe even ruled with the authorities. Slide 13

14 Occupational Benefits Employee contributions to Swiss pension schemes are tax deductible. Swiss pension law also allows for tax deductible catch-up contributions (missing years, salary increase). Generous pension schemes allow for larger catch-up contributions and therefore additional tax planning. For individuals with tax liabilities in other countries: Swiss pension schemes may not be recognized as tax effective in the other country. Slide 14

15 Special Expatriate Remuneration Special Expatriate Remuneration Expatriates 1) are entitled to a number of tax effective benefits: Housing: (reasonable) Swiss housing cost in case of maintaining a principle residence abroad. Schooling: Fees for dependent children visiting international schools in case Swiss schools are unsuitable (e.g. due to language). Relocation costs: Travel cost for expatriate and family at the beginning and end of assignment as well as shipping of household goods. Home leave: commuting costs for expatriate if the family remained in the home country. Employer may provide these benefits free of taxes or employee can claim a deduction in the tax return. Benefits are in any case limited to the first 5 years in Switzerland. 1) Definition: employee in managerial position seconded to Switzerland for a maximum period of 5 years or a specialist on a time limited contract for up to 5 years. Slide 15

16 Across the Border Across the Border Tax planning from a Swiss perspective may be successful. However, what might be good in Switzerland may not work or has even contrasting consequences in another country. Reduction of Swiss taxes may also reduce the foreign tax credit, resulting in a higher final tax liability abroad. On the other hand: tax planning available in another country may not be recognized in Switzerland (e.g. municipal bonds in the US). Slide 16

17 Summary All remuneration is generally taxable income. No tax planning for base salary and bonus. Employer may provide fringe benefits that can result in tax advantages. Equity compensation could result in favourable taxation. Expatriates can claim special tax deductions/tax compensation. Always consider the effects in other jurisdictions Slide 17

18 Questions? All rights reserved. refers to the network of member firms of International Limited, each of which is a separate and independent legal entity PwC