A look at stock option and the phantom share scheme

The use of a share scheme to grant stock options is therefore a popular way to reward and motivate employees and retain key staff. The idea is simple: staff are rewarded based on the performance of the company. The better the company performs the higher the share price and the greater the value of the employee's shares.

A stock option generally grants the employee the right to acquire a certain number of shares in the company (or parent company) within a fixed future time period at either a fixed or discounted price. Additionally, the grant of the stock option should not result in a tax liability for the employee. Once the stock option becomes exercisable, the employee has the opportunity to acquire the shares at the agreed price and can either sell them immediately or hold them in the expectation of further appreciation in value.

The tax treatment of the income in the employee's hands does not differ whether the stock options are granted by a Thai employer or by an overseas parent company except when the shares are sold. Generally, when the stock option is exercised, a personal income tax liability will arise on the difference between the market value of the shares and the amount paid by the employee to acquire the shares when the option is exercised. On a subsequent sale of the shares, any increase in market value since the exercise of the option will also be taxable unless the shares are listed on the Stock Exchange of Thailand or the employee, being a resident of Thailand, does not bring the sales proceeds from sale of the shares in the overseas company into Thailand in the year of sale.

An alternative to stock options is a "Phantom" share scheme which rewards employees with a cash bonus calculated by reference to the increase in share price of the employer company over an agreed period of time multiplied by the number of phantom shares granted to the employee. When paid, the bonus is treated as employment income and subject to personal income tax. Such a scheme is useful where the company does not want to dilute the holdings of the current shareholders although, unlike stock options, there is a cash cost to the employer. Phantom share options may also be used if a company is not listed but wishes to introduce rewards based on the performance of the company. For instance, instead of the bonus being linked to an increase in share price, it could be allied with an increase in another quantifiable growth measurement.

This information is intended as a general guide only. Tax law is complex and professional advice should be taken before acting on the information provided.