Employee Share Option Schemes in Malta: Tax AnalysisExecutive SummaryThis paper deals with a country – the smallest in the European Union (EU) – known as Malta. The taxation policies and prevalent economic conditions in the labor class of Malta have been studied in respect of the employee benefits and share options scheme. In order to carry out a more comprehensive study, the paper has made use of a comparison of the fringe benefits law between the US and UK model so as to find the elements that best suit the prevailing conditions in Malta. Further, the laws have been studied in respect of tax and profitability in order to find elements in case of both models which will fit Malta’s case.
Apart from this, the paper asks various questions pertaining to certain crucial aspects of the employee share options scheme in context of taxes and deductions. In a nutshell, the paper is a tax analysis of the employment share option schemes in Malta. Contents1. Introduction 1.1: Employee Share Options Scheme 1.2: Malta and Its Economy2. Methodology 2.1: Purpose Statement 2.2: Research Problem3.
Migration and Implications for Labor4. Taxability of Employee Stock Options 4.1: Fringe Benefits Rule 4.2: The US and UK Models: A Comparison5. Tax Implications 5.1: Provision of Employee Stock locally and abroad: Applicable Case LawsTaxability of Individuals Taxability of Companies Trading In and Trading with: TaxationTax Implications for Cross Border Situations6. Tax Consequences of Employee Stock Options: Employer Perspective 6.1: Tax Benefits 6.2: Tax Deductions 6.3: Deductibility Issues7. Conclusion: Recommendations for Law Improvements8. Bibliography/ReferencesChapter 1: Introduction1.1: Employee Share Option Schemes: The human resource or human capital is the most important factor of production in the modern day organization.
For increased profitability, every organization worth its salt ensures complete employee satisfaction from within. With a growth in the field and study of industrial relations, there has been an increased emphasis on employee satisfaction and motivation at the work place. Collective bargaining and worker participation have become important theories and concepts that have crept into the everyday life of an organization. It has been recognized by various scholars of organizational behavior that an employee needs to feel like a part of the organization and have a say in the operation sphere at some level or the other to serve the following ends: To help the employee understand the organizational goals in a better way. To motivate the employee to implement training and learning in the day to day functioning within his or her sphere in the organization. To further the goals of the organization by ensuring complete worker participation. To render some amount of tax benefits and overall profitability to the organization’s books.
Employee share or stock options (ESO) may be defined as the option available before an employee to purchase a certain share in the organization where he or she works.
This share is purchased at pre determined rates. Various companies and countries have various schemes surrounding these options. In effect, these schemes are built to promote tax benefits. (Rizzo et al, 2006)The ESO is an important tool when it comes to achieving coordination between the individual’s aspirations and the organization’s goals. ESO is given to an employee as an incentive to further motivate him or her to work towards the achievement of the organizational goal.
With a limit on the maturity period, the organization also manages to gather certain fringe benefits through the granting of such options to an employee. In this regard, there are two basic categories of stock options that need to be defined before we go any further into tax analysis: