1 Developments in Equity Based Strategies in Asia Pacific Australia 50% CGT relief for...

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Developments in Equity Based Strategies in Asia Pacific

Australia 50% CGT relief for options/shares

Cancellation of options in Aust subsidiaries

Redundancy entitlements under option plans - Canizales v Microsoft Corporation, Microsoft Australia Pty Ltd & Ors (2000) NSWIR Comm118

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Indonesia: “Securities, regulation still in limbo”

“Public offerings” require prospectus filingsPublic offering if total “value” of shares/options

>R$1billion and offered through mass media; or offered to >100 people; or results in purchase of securities by >50 people

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Indonesia (cont’d)Use of “co-operative association” = 1 personPublic offering of foreign ESOP’s may require custodian Bank and listing of Indonesian depository receiptsBAPEAM acknowledge law is inappropriatePolicy change for taxation of foreigners2001 retrospective law for termination entitlements

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Malaysia: “Simplification of Securities Regulation”After 1 July 2000 Securities Commission approval

required to issue any shares or optionsException for shares/options of foreign incorporated Co.SC approval is given if:

Aggregate number of options >10% issued capital Max number of shares or options per employee

<500,000

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Malaysia (cont’d) Eligibility & allocation must be equitable amongst

categories of employees Exercise price of options in unlisted company can

be at a discount to M.V. of share Exercise price of options in listed company must

not be < M.V. of share Foreign full-time contract employees can

participate subject to limit of 20% exercise of options in any year

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Malaysia (cont’d) Plan has a 5 yr time limit - subsequent renewal

subject to SC approvalUnlisted company generally not encouraged to seek

approval of SC to list within 1 yr of introducing any share/option plan

Existing options in unlisted company must be exercised or cancelled before approval of SC to list.

2001 removal of limit on 2 month bonus per employeeDeductibility under recharge agreements more certain

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New Zealand: “Interest free loan plans” Approval required - strict conditions Fully paid shares acquired with interest free loan Shares can be offered at a discount Employee cannot deal with share for min. 3yrs, max.

5yrs Limit of NZ$2,340 value of shares per employee in any

3yr period

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New Zealand (cont’d)Advantages:

Employer gets deduction for notional 10% interest Employee not assessed on loan or discount Suitable with high turnover of staff No prospectus required

Disadvantages No deferral of taxing point beyond acquisition 8yr restriction required for exemption on discount Prospectus required unless exempted

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New Zealand (cont’d) Political push to tax any benefit provided by an

employer to an employee. The present Labour govt plans to introduce a more graduated tax rates

NZ govt is very suspicious of employee share schemes unless they involve all employees

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New Zealand (cont’d) Tax relief for all employee schemes to remain limited

as under the existing Income Tax Act Employee retention, loyalty and effort being maximised

by share schemes is recognised but is kept subservient to the income taxation imperative

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Singapore: “Entrepreneurial ESOP Scheme”

Options granted on or after 1 June 2000 50% tax exemption on option gains of up to S$10M in

10yr period Subject to conditions - both 50% tax exemption +5 year

deferral on tax payment on balance of 50% gain Eligible to only Singapore incorporated companies -

with M.V. of gross assets <$100M

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Singapore (cont’d)Eligible to employees working at least 30hrs/week and <25% of voting shares

Vesting of options restricted: 1 yr from grant if exercise price = share value 2 yrs from grant if exercise price <share value

2001 New Singapore Govt shares 2001 CSOP Scheme

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Japan: “Securities Filing Requirements On grant depends on: (i) number of employees; and (ii)

total value of the securities (eg. exercise price X number of options)

“Securities Registration Statement” (Form 7) required if securities granted to 50 or > employees and value of securities is Yen 100 million or more

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Japan (cont’d) “Securities Notification” (Form 6) required if securities

granted to 50 or > employees and value of securities > Yen 10 million but < than Yen 100 million

“Securities Notification” required if securities granted to < 50 employees but total value of securities is Yen 100 million or more.

There are two aggregation rules. These are: number of offerees; and aggregate value of securities

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Japan (cont’d)

Aggregation Rules Aggregate no. of employees if:

(a) the period for which options must be held b/f they can be exercised is 6 months or less;

(b) shares with respect to which options are granted are newly issued shares; and

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Japan (cont’d) (c)the issuer has previously issued the same

type of shares to any persons residing in Japan during the 6 month period immediately preceding the date on which securities are offered.

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Japan (cont’d) If there have been any other public offerings of the

relevant shares during the past 2 yrs from the date of the proposed offer date with respect to which no Securities Registration Statement was filed, the aggregate issue or sale price of such securities will be in principle included for purposes of the calculation of the total aggregate issue or sale price

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Japan (cont’d) Aggregation rules will not apply where options can

not be exercised until a period greater than 6 months after grant date.

No securities filing required where participants under plan are not required to make any monetary contributions at any stage.

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Japan (cont’d) National tax agency more conscious and interested

in profits received by employees of Japanese subsidiaries of foreign corporations upon exercise of stock options.

The national tax agency have made specific inspections on those who exercised their options resulting in some cases in additional tax being imposed by way of the reclassification of profits from temporary income to salary income.

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Hong Kong Generally offer of securities will require

prospectus in compliance with the Companies Ordinance unless specified exceptions apply.

If offer is done by way of private placement the offer is not taken to being made to the “public” and securities requirements will not be applicable.

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Hong Kong (cont’d) No legal definition of “public” and “private

placement”. Argument that offer by company to its employees does not constitute an offer to public where it is confined to small no. of relatively senior employees

certain procedures often followed to ensure offer characterized as “private placement”: whether special relationship bet offeror and

offeree;

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Hong Kong (cont’d) whether offer/invitation is universal or

general; whether offer/invitation can be accepted by

any person or only by person to whom it is extended;

whether any public action is taken in relation to offer or is it a private matter bet, offeror or offeree;

no. of offerees;

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Hong Kong (cont’d) Guidelines useful for structuring private placement:

issue limited to - 50 or less persons; limit distribution to persons with whom the

issuer has an existing relationship; ensure potential investor is genuinely

interested before issuing numbered copy of memorandum;

state minimum subscription in offering memorandum;

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Hong Kong (cont’d) no public advertising or press conference not associated with Stock Exchange listing keep list of potential investors to whom

documents have been given do not reissue any documents returned by an

offeree offeree to purchase as principal and not

nominee for any other person

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Hong Kong (cont’d) offeree restricted from passing on offering

memorandum and from transferring/reselling shares/options for minimum period (6 months) following allotment

Taxation Implications No tax deferral incentives in Hong Kong; Employee taxed on exercise of options on

difference bet price paid to exercise option and market value of share at date of exercise;

No additional tax at date of sale.

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