Swiss tax law requires employers who incentivise employees with equity- based compensation, settled either in cash or in equity, to provide the tax administration with a summary of the taxable amounts, exchange rates used and other information. Even in the absence of any transaction, a yearly recap must be provided to the authorities. When equity awards are taxed across multiple jurisdictions the summary also needs to include the calculation method used to allocate taxing rights and determine the exact amount of Swiss taxable income.

This summary document is commonly called an “equity annex” and needs to be delivered at the same time as the Swiss salary certificate. Many employers often struggle to gather the information, prepare the annex and deliver it on time to employees.

However, there are automated reporting solutions that can make this process easier.

What exactly is an Equity Annex?

Since January 1, 2013, employers have an obligation to certify equity-based earnings as per the Federal Direct Tax Code. An employer must provide information to the tax administration both for the year when equity rights are issued as well as for the year when a transaction actually takes place. This obligation is also valid when the equity plan is not managed in Switzerland but by a foreign group company or third party. Employees are responsible for correctly reporting this compensation and they must enclose the equity annex with the submitted tax return.

When does it need to be delivered?

The equity annex has to be delivered at the same time as the Swiss salary certificate. Given Swiss tax filing deadlines, the salary certificate and accompanying equity annex normally need to be available to employees by the end of February to allow for timely filing and to avoid interest and penalties.

Why is it needed?

The Federal Direct Tax Code and other relevant statutes require employers to provide a detailed summary of all employee equity-based compensation.

Preparing these documents in the correct way presents specific challenges; some level of understanding and expertise in Swiss and international taxation is required. Payroll teams sometimes have difficulties providing high quality annexes. Incentive management teams are sometimes unaware of specific reporting requirements.

Common equity incentive reporting mistakes include:

• Missing annexes: Failure to prepare required annexes (for example, to confirm there were no transactions during the year);
• Missing information: Failure to include all required information in the reporting document;
• Incomplete reporting:
• Reporting only the Swiss taxable portion of income in the salary certificate (the authorities require full reporting). 
• Non-reporting of the portion of income taxable in Switzerland for non-resident employees.

These mistakes can have an impact on the calculation of an employee’s income tax liability and might lead to penalties in addition to the actual amount of taxes to be paid.

A robust process supported by the right technology allows the production of equity annexes in line with the authorities’ expectations. There are automated solutions that assist in the reporting of ESPPs, PSUs, RSUs, dividend equivalents, blocked shares, stock options and other types of equity incentives for equity annexes. Deloitte has developed a solution of this kind as well as a robust process to meet these equity-based compensation requirements.

Equity-based compensation is often a source of compliance errors. This is due to the level of detail required and the fact that equity incentive plans are often managed outside Switzerland, complicating access to the information needed for the preparation of an annex. This is especially true for employees who have left Switzerland and are no longer on the Swiss payroll but who continue to work for another company within the group.

A summary of the benefits of our assistance include:

1. A guarantee of high quality, compliant reporting taking into account the very latest tax administration requirements.

2. Relieving the payroll team of the burden of equity reporting.

3. Knowledgeable experts who respond to questions from the tax administration on your behalf.

4. The option to prepare equity annexes throughout the year, immediately after transactions take place.

Companies would be well advised to give the same level of attention to the preparation of Swiss Equity Annexes as they do to the preparation of the salary certificate itself. The use of automated reporting solutions raises the quality of the annexes and decreases the time needed to prepare and review them.

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