Switzerland: Beware of equity incentive reporting obligations in Switzerland
Employers in Switzerland are required to provide details on employee equity incentive holdings in a statement included with the annual Swiss salary certificate.
These statements are known as 'equity annexes', and all companies awarding equity incentives to Swiss-based (resident or non-resident) employees must comply with this requirement. Equity annexes are not new, but the cantonal tax authorities throughout the country are becoming stricter when ensuring that equity incentive reporting is accurate. Failure to comply can be costly for employers, both from a reputational and a financial perspective.
Employee equity incentive reporting for internationally mobile employees can be challenging even for the best run payroll departments. Employers should be aware of the following.
Common equity incentive reporting mistakes include:
Failure to prepare annexes when no transaction has taken place;
Failure to include all required information in the reporting document; and
Reporting only the Swiss taxable portion of income in the salary certificate (the authorities require full reporting).
These mistakes can have an impact on the calculation of an employee's income tax liability.
Consequences of failure to comply
The requirement to prepare equity annexes has been in existence for five years as of January 2018. Certain tax authorities previously tolerated non-filers as long as equity income was reported in the salary certificate; however, this practice has shifted over the years and employers that fail to file correct annexes now face stiff penalties.
When inaccurate annexes are discovered for the tax period in progress, the Swiss tax authorities often also will audit prior years' reporting to check for similar mistakes. Switzerland's 10-year statute of limitations can make this exercise challenging for plan administrators and payroll departments.
Other business benefits
Aside from the compliance requirements, proper reporting of employee equity incentives has business benefits, such as:
It is an easy way to verify total equity income, which is helpful in cases of multiple exercises and vestings;
It clearly shows the allocation of foreign and Swiss-sourced equity income for purposes of reporting income in the salary certificate;
It provides a helpful overview for employees by showing the different sources of employment income for the relevant year, the income they can expect to realise in the following years and the vesting dates of the shares in their employee portfolio;
It enables employees to accurately report their equity income on the tax return; and
It provides useful information for human resources and global mobility teams with Swiss-based employees.
Employers should invest time in reviewing the requirements for employee equity incentive reporting. Once the obligations are well-understood, the process can be automated and administered by payroll generalists.
van den Eeckhaut
Tel: +41 58 279 6986 and +41 58 279 6112