NEWSLETTER-2017

46 NEWSLETTER 2017 • Restricted Stock Units Taxation of the SOPs Taxation is perhaps the most important issue in the exercise of SOPs both for company and employee. In this respect, firstly, it should be determined as to how the taxation rules apply to the granting and sales of the SOPs. Art. 61 of the Income Tax Law describes employ- ment income as benefits paid in cash, in-kind, or through other means, represented by money for services rendered, to persons employed by an employer, and working at a certain workplace. This definition in- cludes all non-cash benefits provided, and payments made (including allowance, compensation, cash indemnity, funds, increase, advance, dues, attendance fee, premium, bonus, and reimbursement or under any other names). Payment as a certain percentage of earnings (pro- vided it is not related to an ownership of a company and related to the employment of the concerned personnel) must also be included under this definition and considered as employment income. The taxable event for employment income is triggered once the employee legally and economically has the right to dispose of the ben- efit or to receive payment. Income tax is imposed upon the exercise on any “spread” on the shares, which is the excess of the fair market value of the shares on the exercise date, over the aggregate exercise price paid. According to Art. 94 of the Income Tax Law, the benefit, which is described as the difference between the shares’ price at granting, and value at vesting, is subject to withholding taxes, and must be declared by the Turkish resident company in the withholding tax return. The income tax rate is applied at progressive rates ranging between 15% and 35% depending on the total amount of the benefit. Under the definition in Article 80 of the Income Tax Law, capital gains exemptions apply in the event of (i) gains derived from the dis- posal of (Turkish-resident legal entities’ shares that are held for more than two years and (ii) gains derived from a sale of shares listed on the Istanbul Stock Exchange and retained for more than one year are not subject to withholding tax.