CMS Expert Guide to Stock option grants in Ukraine
- Can a local company issue stock options/restricted units in your jurisdiction?
- If yes, is it a common practice to issue stock options/restricted units by local company in your jurisdiction?
- Is it allowed for the residents of your jurisdiction to receive stock options/restricted units from foreign companies?
- Is it common to use recharge mechanisms with local companies when the stock options/restricted units are issued by foreign company?
- Does your jurisdiction have special regulations applicable to stock options/restricted units granted to its residents from foreign companies?
- When stock options/restricted units are granted by foreign company, is it commonly required to have prospectus or other offering to be published in your jurisdiction?
- Whether the grant and/or vesting of stock options/restricted units are considered a notifiable event in your jurisdiction from the company’s (issuer) perspective?
- Are there any regulatory or other restrictions that could significantly limit an ability of the residents of your jurisdiction to participate in foreign stock option plans?
- Is it necessary to undergo any kind of registration of foreign stock option plan in order for the residents of your jurisdiction to participate?
- Does your jurisdiction have special taxation rules applicable to stock options/restricted units?
- Whether grant/vesting of stock option is considered a taxable event for participant in your jurisdiction?
- Whether spread between exercise price of option and market price of shares is considered taxable income for participant in your jurisdiction?
- Whether investment gain on sale of shares received upon exercise of option are subject to tax in your jurisdiction?
- Whether grant of restricted units is considered a taxable event in your jurisdiction?
- Whether vesting of restricted units is considered a taxable event in your jurisdiction?
- Whether there is a risk of double taxation upon sale of shares received under restricted units by participant in your jurisdiction?
- Whether there is separate securities tax applied to shares received under stock option/restricted unit in your jurisdiction?
- Whether social security taxes may apply to benefits received by participant under stock option plan?
- Is there a risk of double taxation for the residents of your jurisdiction in case of receiving foreign stock options/restricted units?
- Is there a possibility for stock option plan to benefit from any special taxation regime in your jurisdiction, in case if certain conditions are met?
- Whether the burden of tax reporting of taxable income received from stock options/restricted units issued by foreign company lies with the participant or the company (including local subsidiary in cases of recharge mechanisms)?
- Is it common in your jurisdiction to offer cash payout to the participants instead of shares as a result of stock options exercise/restricted units vesting?
- Is it necessary in your jurisdiction to have stock option plan documents translated into local language?
- Is it required for a participant of the plan to have a separate bank account in order to pay for vested shares?
- Whether there are any restrictions in your jurisdiction on granting stock options/restricted units to independent contractors?
- Does the company have consultation obligation towards employee representative bodies (e.g. works council) prior to launching a stock option plan in your jurisdiction?
- Besides having a plan, is it required/recommended in your jurisdiction to conclude a separate option/unit award agreement with the employee?
1. Can a local company issue stock options/restricted units in your jurisdiction?
No.
There is insufficient legislation for a local company to be able to issue stock options or restricted units to employees.
2. If yes, is it a common practice to issue stock options/restricted units by local company in your jurisdiction?
No.
3. Is it allowed for the residents of your jurisdiction to receive stock options/restricted units from foreign companies?
Yes.
4. Is it common to use recharge mechanisms with local companies when the stock options/restricted units are issued by foreign company?
No.
Nevertheless, recharge arrangements are possible in principle and various contractual structures can be implemented for this purpose.
5. Does your jurisdiction have special regulations applicable to stock options/restricted units granted to its residents from foreign companies?
No.
6. When stock options/restricted units are granted by foreign company, is it commonly required to have prospectus or other offering to be published in your jurisdiction?
No.
7. Whether the grant and/or vesting of stock options/restricted units are considered a notifiable event in your jurisdiction from the company’s (issuer) perspective?
No.
8. Are there any regulatory or other restrictions that could significantly limit an ability of the residents of your jurisdiction to participate in foreign stock option plans?
Yes.
Such restrictions mostly relate to currency controls and an individual’s ability to make cross-border payments for options
9. Is it necessary to undergo any kind of registration of foreign stock option plan in order for the residents of your jurisdiction to participate?
No.
10. Does your jurisdiction have special taxation rules applicable to stock options/restricted units?
No.
11. Whether grant/vesting of stock option is considered a taxable event for participant in your jurisdiction?
No.
12. Whether spread between exercise price of option and market price of shares is considered taxable income for participant in your jurisdiction?
Yes.
We recommend seeking individual advice on this point, but in general such spread can be considered as taxable income.
13. Whether investment gain on sale of shares received upon exercise of option are subject to tax in your jurisdiction?
Yes.
14. Whether grant of restricted units is considered a taxable event in your jurisdiction?
No.
15. Whether vesting of restricted units is considered a taxable event in your jurisdiction?
Yes.
We recommend seeking individual advice on this point, but in general vested restricted units can be considered as taxable income.
16. Whether there is a risk of double taxation upon sale of shares received under restricted units by participant in your jurisdiction?
Yes.
The value of shares received for free is effectively subject to tax twice: at the vesting event (as a gift) and on sale (as an investment gain).
17. Whether there is separate securities tax applied to shares received under stock option/restricted unit in your jurisdiction?
No.
18. Whether social security taxes may apply to benefits received by participant under stock option plan?
Yes.
Social taxes may arise only if benefits are offered such as a cash pay-out via local payroll. Otherwise, under general rules social taxes do not apply.
19. Is there a risk of double taxation for the residents of your jurisdiction in case of receiving foreign stock options/restricted units?
No.
20. Is there a possibility for stock option plan to benefit from any special taxation regime in your jurisdiction, in case if certain conditions are met?
No.
21. Whether the burden of tax reporting of taxable income received from stock options/restricted units issued by foreign company lies with the participant or the company (including local subsidiary in cases of recharge mechanisms)?
The participant, except for cash-based settlements implemented through local payroll.
22. Is it common in your jurisdiction to offer cash payout to the participants instead of shares as a result of stock options exercise/restricted units vesting?
Yes.
Offering cash payout is common in cases where the participant is prevented from fully exercising their stock options due to local currency control restrictions.
23. Is it necessary in your jurisdiction to have stock option plan documents translated into local language?
No.
Having a Ukrainian translation may be helpful for the participants in certain respects, but it is not mandatory.
24. Is it required for a participant of the plan to have a separate bank account in order to pay for vested shares?
No.
25. Whether there are any restrictions in your jurisdiction on granting stock options/restricted units to independent contractors?
No.
26. Does the company have consultation obligation towards employee representative bodies (e.g. works council) prior to launching a stock option plan in your jurisdiction?
Yes.
Unless the terms of the stock option plan are reflected in the company’s collective bargaining agreement, the company needs to agree (not only consult) them with the trade union or other employee representative bodies, if such exists in the company. However, very few privately owned companies in Ukraine have collective bargaining agreements or trade unions/employee representative bodies. Therefore, in practice this requirement will be relevant in isolated cases only.
27. Besides having a plan, is it required/recommended in your jurisdiction to conclude a separate option/unit award agreement with the employee?
Yes.
