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Unlock Tax Benefits for Employee Shareholders: A Landmark Ruling for High-tech and Industrial Companies

Benefit from a pivotal District Court ruling that offers reduced tax rates on dividends for employee shareholders. If your company is a Benefitted or Preferred Enterprise, this change could impact you

Abstract Background

The District Court (Central Region) recently ruled that employees who hold shares in Benefitted or Preferred Enterprises under the Capital Investment Encouragement Law (1959) will only be taxed 15% or 20% on dividends, instead of 25%. This applies retroactively to relevant employees from the past six years and affects private and public companies.

This significant ruling is based on the court’s recognition that employees are not just ‘passive’ shareholders but are invested in the company from the beginning, since they sometimes choose to waive part of their salary and social benefits to be granted with options, RSUs or any other type of capital incentives. Therefore, they are entitled to pay similar taxes as the company’s investors and shareholders, even in cases involving Benefitted or Preferred Enterprises.

So - whether you are negotiating employment or separation terms, or considering how to benefit your employees - check if your company is a Benefitted or Preferred Enterprise and when such a benefit is expected to be relevant to your employees.

Thanks to our broad view of employment relationships, which also includes a deep understanding of employees’ economic rights, our experienced team can help you navigate this benefit and take it into consideration in the right place and at the right time.

Contact us today if you are seeking legal consultation regarding employment matters with a broad insight into commercial aspects!

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