Dear Clients,
On September 17, 2024, the Income Tax Rules (Tax Benefits for Employee Stock Allocations) (Amendment), 2024 (hereinafter: "the Amendment") were published in the official gazette.
As part of the Amendment, the Income Tax Rules (Tax Benefits for Employee Stock Allocations), 2003 - which have been in effect regarding equity plans and compliance with the requirements of Section 102 of the Income Tax Ordinance [New Version], 1961 (hereinafter: "the Ordinance") - have been amended.
The Amendment will come into effect on January 1, 2025, and introduces changes to the submission process for both new equity plans and updates to existing equity plans. These changes effectively establish a legislative “green light” for the approval of equity plans, providing companies with certainty that the plan has been approved by the ITA shortly after its submission.
The request for approval of the equity plan will now be submitted through the electronic system (replacing the physical submission process that has been in use to date) and will require, among other things, the completion of a new form - a questionnaire regarding the terms of the equity plan (Appendix D). The questionnaire will require detailed information such as company data, trustee details and the equity plan, the identity of the equity instruments being granted, cash settlement options, CALL and PUT options, rights attached to the allocated equity instruments (e.g., voting, dividends, etc.), vesting conditions, and more.
The company's responses in the questionnaire will be subject to review by the Tax Assessor, who may request further explanations or clarifications if necessary. Any change or update to the equity plan that alters the company's responses in the questionnaire will require the company to submit an update through the electronic system. The ITA will treat such an update as the submission of a new equity plan.
Equity allocations made under a plan that is not submitted through the electronic system as required will be classified as allocations not made through a trustee, and the provisions of Section 102(c) of the Ordinance will apply.
In addition, the Amendment introduces a reporting obligation for companies through the electronic system, which includes quarterly reporting (Form 146) and annual reporting (Form 156). These reports will cover both trustee and non-trustee allocations and will include comprehensive data, such as employee names, allocation dates, the quantity and type of compensation instruments, exercise additions, vesting conditions, new allocations, exercises, and/or changes to existing allocations, among other details.
The ITA is expected to publish a professional circular with further details regarding the implementation of the Amendment, including submission and reporting requirements through the electronic systems.
Considering the above, we have proactively prepared to offer your ongoing professional support and operational assistance with submitting new equity plans and the required reports under the Amendment.
We remain at your disposal for any questions.
Sincerely,
altshare
** The above does not constitute legal or tax advice that considers the specific data and needs of each client.
About altshare
altshare is a leading, fast-growing Equity Management & Compensation Plans Administration solutions provider. We love challenges. We are obsessed with our clients. We are on a mission to redefine the way founders do equity. All our products & services are supported through the altshare Platform - the only equity management platform built for entrepreneurs.
