Welcome to the February 2025 edition of Share | Updates!
In this issue, we’ll be covering some of the latest tax and legal changes in Argentina, Brazil, Canada, Estonia, Kazakhstan, Latvia, Norway, Spain and USA.
Argentina
Changes to Social Security threshold
The Social Security cap will now be updated monthly, rather than quarterly.
Employee Social Security is payable at a flat rate of 17% and is capped at approx ARS 2,989,160 per month (for February 2025), withheld by the Local Company. The salary cap index is adjusted monthly.
Brazil
Update on position after STJ Ruling and progress on consultation on bill regarding stock options
A recent Superior Court of Justice (STJ) ruling in Brazil has determined that Awards are to be considered commercial in nature and therefore are not subject to income tax (IRPF) at exercise, and the tax point is deferred until sale.
The ruling is binding, however, local practice may vary. A separate ruling has been made regarding social security which states that Awards will be subject to social security on exercise. As this differs from the income tax position, there may be strong arguments that social security contributions should not arise.
A bill is currently under discussion to establish a legal framework for share options in Brazil (Bill No. 2,724/2022). This bill aims to align tax legislation with the STJ’s understanding that share options have a commercial nature.
The bill has been approved by the Brazilian Federal Senate and is still awaiting approval by the House of Representatives. A Public Hearing is in progress in respect of the bill.
S|R Note:
We are awaiting the outcome of the public consultation on the bill.
Canada
Deferral of increase to Capital Gains Tax
The law increasing the amount of capital gains tax payable by a Participant on all gains in excess of CAD $250,000 has been formally deferred until 1 January 2026.
This was announced by the Minister of Finance and Intergovernmental Affairs on 31 January 2025. This resolves the uncertainty created following the Canadian Prime Minister’s resignation on 6 January 2025 and the prorogation of Parliament.
In general, only one-half of a Participant’s capital gains are included in the amount to be taxed (at the Participant’s marginal income tax rates). It had been proposed that if a Participant’s total capital gains in any year exceed CAD $250,000, the inclusion rate on any capital gains above this threshold increases from one-half to two-thirds. This proposed change was not, however, formally adopted before the prorogation of Parliament.
Although the Canada Revenue Authority (CRA) had initially stated that it will continue to administer taxes based on the increase being in force, this will no longer be the case. It is now expected that the change will be made with effect from 1 January 2026 (assuming the proposal is formally adopted).
This deferral until 1 January 2026 will also apply to the proposed change in the deduction that can be made to the taxable amount arising on the exercise of “qualifying” stock options. In general, the taxable gain arising on the exercise of options may be reduced by up to one-half if the options meet certain qualifying criteria. It had been proposed that this rate of reduction would fall to one-third (but with an ability to apply an additional one-sixth deduction on the first CAD $250,000 of taxable gain, but only to the extent that the Participant was not already benefiting from the reduced inclusion rate for capital gains tax). It is now expected that the proposed change will only be made with effect from 1 January 2026 (assuming the proposal is formally adopted).
Estonia
Increased FBT Rate
The Fringe Benefit Tax (FBT) rate has increased to c.70.51% as a result of the increase to Corporate Income Tax which makes up an element of the overall FBT rate and which has increased to a maximum of c.28.21%.
Fringe Benefit Tax is made up of Corporate Income Tax – CIT (at a maximum rate of 28.21%) and Employer Social Tax (at a maximum rate of 33% and on the basis that Employer Social Tax is also payable on the Corporate Income Tax paid by the Company).
Example:
Where the amount of the benefit is EUR 100, the CIT due by the employer would be EUR 28.21 and the social tax due EUR 42.3 (0.33 x 128.21), for a total fringe benefit tax charge of EUR 70.51.
Increased Personal Income Tax Rate
The Personal Income Tax rate has increased to 22% (from 20%). Personal Income Tax is payable on Awards in the form of cash and any gain realised on the sale of shares acquired from equity based Awards.
New Security Tax from 2026 – 2028
Where Personal Income Tax arises, there will be an additional Security Tax levied at a rate of 2% (uncapped) from 2026 to 2028.
Kazakhstan
Increase to Employer Social Security
Employer Social Security has increased to 7% (from 5.5%).
Latvia
Increase to maximum rate of Income Tax
The maximum rate of income tax has increased to 33%. Should the total taxable income as defined under the Law “On Personal Income Tax” of the Participant exceed EUR 200,000 in a year, additional 3% income tax will be applicable to the portion of income exceeding EUR 200,000.
Norway
Reduction in Employer’s Social Security
With effect from 1 January 2025, the additional 5% employer’s national insurance contributions charge (previously on income exceeding NOK 850,000) has been abolished. The maximum rate of employer’s national insurance on income above NOK 850,000 is now limited to 14.1% (down from 19.1%).
Improvements to tax advantaged plans for start-ups
The Norwegian National Budget for 2025 has approved changes to the tax-advantaged arrangements for smaller, start-up companies. These include increasing the maximum employee threshold from 50 to 150 employees. The new rules will come into effect once approved by the EFTA Surveillance Authority (ESA).
Spain
New Uncapped Solidarity Contribution
With effect from 1 January 2025, a new Solidarity Contribution has been introduced in addition to the existing Social Security regime.
Solidarity Contribution is applied on remuneration in excess of the maximum contribution base for Social Security (EUR €4,909.50 per month), as follows:
- From the cap (€4,909.50) to 110% of the cap (€5,400.45): Taxed at 0.92%.
- From 110% of the cap to 150% of the cap (€7,364.25): Taxed at 1.00%
- Above 150% of the cap (€7,364.25): Taxed at 1.17%, with no upper limit.
How It’s Shared:
- Employers pay 83.39% of the tax
- Employees pay 16.61% of the tax
Example:
If someone earns €8,000 per month:
- Income from €4,909.50 to €5,400.45 (€490.95): taxed at 0.92% = €4.52.
- Income from €5,400.45 to €7,364.25 (€1,963.80): taxed at 1.00% = €19.64.
- Income above €7,364.25 (€635.75): taxed at 1.17% = €7.43.
Total Solidarity Contribution = €4.52 + €19.64 + €7.43 = €31.59.
- The employer pays €26.38 (83.39% of €31.59).
- The employee pays €5.21 (16.61% of €31.59).
The Solidarity Contribution rate is set to increase every year until 2045 (when the maximum rate of Solidarity Contribution is due to reach 7.00%).
Increase in top capital gains tax rate
With effect from 1 January 2025, the maximum personal income tax rate applying to capital gains and dividends has increased from 28% to 30% in excess of EUR €300,000.
USA
Streamlined 83b election process
On November 7, 2024, the IRS introduced new Form 15620 (Section 83(b) Election) that a taxpayer may use to make a Section 83(b) election, aiming to streamline the election process for taxpayers.
Section 83(b) allows individuals who receive property subject to vesting—often in the form of stock or other equity compensation—to elect to include the property’s value as taxable income at the time of receipt, rather than when it vests. This new form standardizes the election, reducing the likelihood of errors and making compliance easier for both taxpayers and employers.
Importantly, taxpayers are not required to use IRS Form 15620 to make a Section 83(b) election and may continue to use “substitute” election forms that are often attached to equity incentive award agreements.
Also, the introduction of the form does not change the 30-day deadline for filing an election from the date the “property” is received. Missing this window results in the forfeiture of the opportunity to make the election, often leading to significantly higher taxes in the future.
S|R Note:
We suggest incorporating this new form into the equity award process. By attaching it to executive compensation awards, it ensures that elections are both complete and compliant with IRS requirements, providing a smoother experience for all.
Employers should review their internal processes to incorporate the new form and consider educating employees about the benefits of making timely Section 83(b) elections where applicable.