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 nonresident) employees must comply with this requirement. Equity annexes are not new, but the cantonal tax authorities throughout the country are becoming more strict on ensuring that equity incentive reporting is accurate. Noncompliance can be costly for employers, both reputationally and financially.

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:

Misreporting
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 will have 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 current tax period, 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-source 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. 

Comments 

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. 

Renaat Van den Eeckhaut – Partner, Global Employer Services Leader Switzerland and EMEA

Renaat leads the Global Employer Services (GES) Practice for Deloitte Switzerland and EMEA. He specialises in international assignment and cross-border employment matters and advises on tax, social security and international mobility policies. Renaat has nearly 20 years of experience with Deloitte Belgium and Switzerland and has worked with many companies across a broad range of industries. Renaat holds a Master in Law and Accounting Law and has authored many publications on international taxation.

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Anna Schneider – Assistant Manager, Global Employer Services

Anna is Assistant Manager within the Swiss Reward team and specialised in advising companies across industries on multi-facetted compensation topics with experience in designing and implementing equity-based compensation schemes as well as compliance with tax and regulatory requirements to compensation structures in Switzerland.

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Kim-Yen Pham – Assistant Manager, Global Employer Services

Kim-Yen is Assistant Manager of the Swiss reward team and a certified Swiss compensation and benefits experts. Prior to her career in reward consulting, she gained long-term experience working in compensation & benefits and payroll departments of various global companies headquartered in Switzerland. She now is specialised in advising companies on compensation topics.

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