Employee shares schemes and taxes

An employee share scheme is a type of compensation plan that provides employees with an ownership stake in the company. Some benefits of an employee share scheme include:

1. Increased motivation and engagement: When employees have a stake in the company's success, they may be more motivated and engaged in their work.
2. Alignment of interests: An employee share scheme can align the interests of employees and the company, as both benefit from the company's success.
3. Long-term savings and wealth creation: By participating in an employee share scheme, employees can accumulate shares over time and potentially benefit from the appreciation in the value of the company's stock.
4. Attraction and retention of employees: An employee share scheme can be an attractive benefit to potential employees and help retain existing ones.
5. Employee ownership culture: When employees own a stake in the company, they may be more likely to act as owners, making decisions that benefit the company.

An employee share scheme can have several benefits for B-BBEE compliance:

1. Skills Development: Employee share schemes can provide employees with training and development opportunities, which can count towards a company's BBBEE score for skills development.
2. Ownership: By offering employees an ownership stake in the company, an employee share scheme can contribute to BBBEE ownership targets.
3. Broad-based participation: Employee share schemes can be designed to be broad-based, allowing for participation by a diverse range of employees, including those from historically disadvantaged groups. This can contribute to BBBEE compliance for broad-based economic empowerment.
4. Enterprise Development: Employee share schemes can provide employees with the opportunity to start their own businesses or invest in other enterprises, which can contribute to BBBEE enterprise development targets.

The specific benefits of an employee share scheme for BBBEE compliance will depend on the design of the scheme and the company's overall B-BBEE strategy.

In South Africa, the tax implications of an employee share scheme are governed by the Income Tax Act 58 of 1962 and the Fourth Schedule of the Act, which deals with the taxation of fringe benefits.

The specific legislative sections that apply to the tax implications of an employee share scheme include:

• Tax on grant of shares: Section 8B of the Income Tax Act provides that the value of shares received by an employee as a result of an employee share scheme is considered taxable income.
• Tax on vesting of shares: Section 8C of the Income Tax Act provides that the value of shares that vest (i.e., become exercisable) as a result of an employee share scheme is considered taxable income.
• Tax on sale of shares: Section 9C of the Income Tax Act provides that any capital gain or loss arising from the sale of shares received because of an employee share scheme is taxable.
• Dividends tax: Section 64D of the Income Tax Act provides that dividends received by an employee because of an employee share scheme are subject to dividends tax.

It is important to note that these are general provisions and the specific tax implications of an employee share scheme will depend on the specific details of the scheme and the individual circumstances of each employee. Employees should consult with a tax professional to understand the tax implications of participating in an employee share scheme, and companies should seek professional advice when designing an employee share scheme to ensure that it complies with all relevant tax laws and regulations.

Ownershield deals extensively with the implementation of B-BBEE ownership structures, including the relevant tax position of each.

Discuss your requirements with us.