Many Swiss employers have struggled with equity compensation reporting requirements for their employees. An update to Circular No. 37, effective from 1 January 2021, provides welcome clarity and consistency, including:
- A standard reporting template accepted by all Cantonal tax authorities.
- Support for electronic filing for efficient, future-proofed delivery to the tax authorities.
All Swiss employers must provide their employees with a salary certificate (Lohnausweis/ Certificat de Salaire), which includes all relevant employment income they have received in the applicable tax year. For any employee receiving equity compensation, the total gross equity compensation must be reported on line 5 of this salary certificate. Under the terms of Circular No. 37 “Besteuerung von Mitarbeiterbeteiligungen” (taxation of employee participation), the employer must also provide the employees, and the employee’s Cantonal tax authority, with additional information in an addendum or “annex” to the salary certificate. The annex must include relevant information relating to their equity compensation, such as plan name, grant and vest date, and number of instruments the employee received. This reporting requirement applies to all employees receiving equity compensation relating to their Swiss employment, even if they left Switzerland before the end of the year.
The employee participation plan regulations (Mitarbeiterbeteiligungsverordnung / Ordonnance sur les participations de collaborateur) provide guidance on the information that must be included in the annexes to the Swiss salary certificates (see for example Art. 4 and Art. 5 on the requirements for shares and share option plans). However, no specific template for reporting is included in the regulations. Since their release, the Canton of Vaud is the only Canton to provide a specific template.
The lack of clarity and consistency across Cantons meant that many employers were not sure what format to use to report to the Cantonal tax authorities. Many companies took practical approaches, which may not have been in line with specific requirements for employees living in Vaud.
Employees, their advisors and tax authorities also had to interpret different annex formats from different companies, and ensure appropriate information was included and correctly reported. These differences added complexity to the process of completing and filing of Swiss tax returns.
Circular No. 37 updates
On 30 October 2020, the Swiss Federal Tax Administration (ESTV) updated Circular No. 37, which came into force on 1 January 2021. The update clarified how employers can report equity compensation information to the Cantonal tax authorities in a consistent format, in particular:
- Standard reporting template: the update to Circular No. 37 contain additional information on how to report equity compensation. It also includes sample annex templates, which will be accepted by all Cantonal tax authorities. The sample annexes are based on the Canton of Vaud’s previous requirements.
Insight: for companies that did not previously adopt the Vaud-template for equity compensation reporting, we recommend adopting this sample for the tax year 2021. Using this template will provide peace of mind that you are fully compliant with your equity compensation reporting obligations, no matter which Canton the employee lives in.
- Electronic transmission: the Swissdec unified payroll reporting software (Elektronische Lohnmeldeverfahren – ELM Version 5.0) will support the electronic transmission of the annexes in the standard format to the relevant Cantonal tax authority. ELM 5.0 is expected to be released by the end of the first quarter of 2021 and is expected to become the new standardised format used by all Cantons.
Insight: many companies we speak to tell us how inflexible their payroll systems are, with long lead times for updates to be made. The early release of ELM 5.0 will allow companies to start planning now, to make use of electronic transmission of the equity annexes along with their employees’ salary certificates for the 2021 tax year. This will greatly ease the administration and save time for all parties. On this basis, we expect many tax authorities to push employers to deliver such annexes electronically, and recommend companies start to review and update their processes now.
How we can help
KPMG’s Swiss Equity Annex Reporting (SEAR) technology solution has the functionality to:
- Process the data using standard reports
- Consider only the relevant information required
- Ensure data accuracy by using a sophisticated data validation mechanism
- Generate annexes in both Excel and PDF formats, in multiple languages (standard languages: German, French, Italian, English)
- Automated sharing of annexes with employees
- Use of data analytics of your centralized data to gain valuable insights
If you would like to discuss our service or want to learn more about our SEAR solution, please do not hesitate to contact us.