Global Stock Options Survey. Bowman Gilfillan South Africa

Transcription

1 Global Stock Options Survey Bowman Gilfillan South Africa CONTACT INFORMATION: David Geral Bowman Gilfillan 165 West Street, Sandton Johannesburg, South Africa Telephone: Are there any corporate actions that need to be taken by the Committee or the shareholders to establish the plan? Unless the company's constitutional documents require something further, the Plan would only need to be adopted by the directors of the company 2. Are there any requirements in your jurisdiction about the composition or authority of the Committee? A committee need not be established but in terms of the Companies Act "(the Act"), the company must appoint a compliance officer ("CO") who is responsible for the administration of the Plan. 3. What does the Committee have to publicly disclose about its Plan-related decisions and when must those disclosures be made? Certain information relating to the company, any potential risks related to the shares, as well as a copy of the company s latest annual financial statements ("AFS") must be given to participants. The company must state in the AFS the number of shares, including options, allotted during the

2 financial years in terms of the Plan. This information becomes public because it must be filed with the Registrar of Companies (Registrar) see Is a participant subject to taxation: on receipt of the option; on exercise; or otherwise? A Participant will not be subject to tax on the receipt of the option, but may be subject to income tax on exercise of the option. Liability accrues upon vesting which depends on whether the equity instrument is a restricted or an unrestricted instrument. The gain is calculated by subtracting the strike price of the instrument from the market value of the instrument on the date of vesting subject to Capital Gains Tax (CGT). 5. Does the tax treatment vary depending on where the Participant resides or habitually exercises his duties (i.e. outside your jurisdiction)? Yes. South Africa taxes South African residents on their worldwide income and non residents only on income which is derived from a South African source or a source which is deemed to be South African. The application of the tax legislation is subject to what is stated in any applicable double tax treaty., 6. Does the tax treatment vary depending on the type of option or specific Plan provisions concerning the option? Yes. The provisions of the Plan will determine whether the option constitutes a restricted or an unrestricted instrument. The tax liability may be triggered immediately upon the exercise of the option or at a later stage when the restrictions to which the underlying shares or other equity instrument is subject, cease to have effect. 7. Is Company X entitled to claim a deduction from (or other reduction of) taxable income with respect to the option and, if so, when and how is this calculated? No. 8. Does the tax treatment under 7 vary depending on where the Participant resides or habitually exercises his duties (i.e. outside your jurisdiction?) No. 9. Are there special rules for significant shareholders (for example, more than 10% shareholders of the Company)? There are no disclosure requirements applicable to significant shareholders.

3 10. What are the other principal tax considerations, if any, such as withholding for social insurance, employment taxes, unemployment taxes, etc., for Company X or its local subsidiary or branch office in your jurisdiction, and the participant? The South African employer must withhold and remit employees' tax (PAYE) from remuneration of employees who are liable for tax in South Africa. The employer must withhold (and co-contribute) 1% (to a max of R125) of such employees' remuneration in respect of Unemployment Insurance and must pay a skills development levy equal to 1% of payroll monthly. 11. What needs to be done, if anything, under your local law so that Participants obtain the favorable tax treatment offered by your jurisdiction? Ensure that most of the growth in value is subject to CGT, by ensuring that the instrument is an unrestricted instrument. This will trigger an immediate income tax liability, assuming that the vesting results in a gain for the Participant. However, this may have cash flow implications for Participants who will need to pay the income tax from their own pockets if they want to continue holding the instrument. 12. What securities law or other regulatory (or exchange) requirements are there, if any, such as: filing requirements; prospectus requirements; offering exemptions; size of offering limitations; and currency requirements? Under the Act, the offer under the Plan is exempt from the requirements applicable to offers to the public. Therefore, the prospectus is not required and only the information stated above must be furnished to Participants. Copies of all such information must be lodged with the Registrar within 30 days of establishment of the Plan and within 60 days of after the financial year end, the CO must inform the Registrar of its compliance with all obligations required by the Act relating to the Plan. 13. Is a cashless exercise permissible? Yes. 14. Are there any rules in your jurisdiction that prohibit or discourage a foreign subsidiary of Company X from granting options to acquire shares of common stock of Company X to the subsidiary's executives? There are no specific rules prohibiting such an offer. There is, however, a prohibition on offering shares to the public without a prospectus and what constitutes an offer to the public is unsettled in our law and will depend on the facts of each case. What is required is that the Plan is placed on record with the Financial Surveillance Department of the South African Reserve Bank (FSD) and the FSD would need to be notified of the acquisition of and manner of payment for the shares.

4 15. Are the rules addressed in this survey applied differently based on whether the multinational operates in a particular jurisdiction as a branch office or as a domestic subsidiary? If so, what are these differences? No; provided that the local subsidiary, branch or external company is registered in South Africa. 16. Do executive employees in other jurisdictions need to be covered by a plan of the subsidiary or a plan separate from your Plan to comply with your jurisdiction's law? In South Africa, all Participants, including executives, can be covered by the same Plan but this may be dependent on the requirements of another jurisdiction and we are not competent to advice on this. 17. If known, please comment on the accounting issues which are relevant for this Plan. Not known. 18. List any other requirements of importance in your jurisdiction. We consider it prudent to caution that an apparently innocent differentiation of any kind could amount to unfair discrimination since the existence or otherwise of a discriminatory practice does not depend on the intention that informs the practice, but, on the effect that the practice has on different groups of employees. 19. Severance Risks: Will the value of granted options legally need to be included in severance calculations? The definitions of remuneration in local law are broad enough to include amounts received under incentive schemes as remuneration for general employment law purposes. However, the Minister of Labor has promulgated regulations which provide that benefits or expectations under share schemes are not to be regarded as remuneration for the purposes of severance pay. Therefore our answer is "no", for so long as existing regulations remain in force. 20. Acquired Rights: Will Plan participants become legally entitled to future grants or immediate vesting at termination of employment or service? A change of control in the employer in no way affects the rights and obligations between the employer and employees, accordingly it is imperative that the Plan should contain clear rules in this regard especially in respect of possible privatization/delisting. If the business of Company X were sold there would be an automatic transfer of rights and obligations to the new employer save for a written agreement to the contrary, so that possibility should be addressed in the Plan rules.

5 21. Data Privacy: Will Company X or the local subsidiary or branch office need to take any additional measures to adhere to local data privacy laws? There are no specific regulations regarding data privacy. The courts have held that prior written approval must be obtained for any use or transfer of employees' "personal' data. Therefore, a consent form should be included in the Plan documents. The Electronic Communications and Transactions Act deals with protection of personal information stored electronically and set out the principles that govern electronic databases.