One of the possible ways for employees of a joint-stock company to acquire shares is through a donation contract concluded between the relevant employees and the majority shareholder – a commercial company. Under the donation contract, the majority shareholder transfers, free of charge, from the block of shares held by him in the joint-stock company a corresponding number of shares to certain employees. The employer company (the joint-stock company) is not a party to the aforementioned contracts, as the donation of shares for the benefit of employees is carried out by the majority shareholder at his expense and for achieved results.
In this case, the question arises whether the acquisition of shares by the employees of the joint-stock company – employer, will be considered non-monetary income received in connection with the employees’ employment relationship with the joint-stock company, pursuant to Art. 24, para. 1 of the Personal Income Tax Act (PITA). In this regard, it should also be taken into account whether obligations arise and for which person with regard to the determination, withholding and payment of tax.
First of all, it is important whether the granting of shares is related to the nature and quality of performance of the employees’ work duties. If related and once the shares are provided in connection with the employees’ employment relationship, they constitute employment income.
Pursuant to Art. 24, para. 1 of the Personal Income Tax Act, taxable income from employment relationships is the remuneration and all other payments in cash and/or in kind by the employer or at the employer’s expense, with the exception of the non-taxable income specified in para. 2 (free meals, food vouchers, travel and accommodation allowances, business trip allowances, etc.). In order for there to be taxable income from an employment relationship, it is necessary that a payment (in cash and/or in kind) has been made to the benefit of the relevant employee and that this payment is not exempt from taxation. In this specific case, there is non-monetary income (income in kind) that does not fall within the scope of non-taxable income under the law.
According to the Personal Income Tax Act, non-monetary income is valued on the date of its acquisition at market price. Non-monetary income is considered to be acquired on the date of receipt of the benefit.
The shares are provided to individuals in their capacity as employees of the subsidiary and participate in the formation of the taxable income from the employment relationship of the employees who perform their work for the employer (the subsidiary). Therefore, the taxable income in this case is the market price of the shares at the time of their acquisition, and the employer will be obliged to determine, withhold and pay the tax due for the relevant month in accordance with the procedure provided for in the Personal Income Tax Act for income from employment relationships. The advance tax on income from employment relationships is determined by the employer monthly based on the monthly tax base.
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