7 - RSUs and Vesting - What No One Tells You About the Tax Impact

00:00:00: And there I was looking at a tax bill with numbers.

00:00:03: Was looking... Yeah, well they could be certainly better than I understood them!

00:00:09: You get taxed on the value of the shares you receive

00:00:14: On that very day?

00:00:15: You realize i don't have that much cash to pay my tax bills and the price off the shares has decreased tremendously.

00:00:24: then you had liquidity problem.

00:00:27: Couldn't help but wonder If taxes are truly unavoidable, why do they always feel like a bad date we never agreed to?

00:00:36: Welcome to Tax and the City.

00:00:38: I'm Julia Tadje from Taxum your personal tax boutique in Zurich.

00:00:43: Here we talk taxes simply and honestly.

00:00:46: Sometimes just you & me sometimes with guests Always rooted in real life.

00:00:52: And Just Like That something mandatory becomes A Little More Delightful.

00:00:59: I couldn't help but wonder why the smartest people i know are often the most surprised when it comes to equity compensation.

00:01:07: They negotiate contracts, manage global teams they understand strategy and risk And then one day a vesting date arrives... ...and suddenly success comes with a six-figure tax bill.

00:01:19: Welcome back to text in the city!

00:01:21: Today's episode is about our use of restricted stock units The reward.

00:01:27: that looks simple till it's not.

00:01:30: You'll hear from Willem Roux, an executive in pharma who found himself facing exactly that moment and you will hear from Bastian Thorn-Eisen partner at Burkhard Lawyers Who brings legal and structural clarity to situations like these At Taksun Personal Tax boutique in Zurich.

00:01:48: this is where our work usually begins Where ambition meets complexity And clarity becomes essential.

00:01:55: In this episode you'll hear two perspectives, the emotional reality and professional clarity.

00:02:02: And we will start with Willem.

00:02:05: Welcome Willem!

00:02:06: Thank you for having me and thank you for casting some spotlight on this very important matter I think.

00:02:12: Many pharmaceutical executives from other people in different industries... Yes

00:02:17: insurances banks tons of companies that offer Restricted stock units as part of their compensation plan.

00:02:26: It's part of the compensation plan, but moreover it is a retention plan and its almost a way to keep you in company and make your proposal to be a lot more attractive.

00:02:37: I've been in a pharmaceutical industry for twenty years.

00:02:40: i'm a doctor.

00:02:40: i qualified at Midston and really thought that i understood what was placed front on me because ive signed so many contract offers before.

00:02:52: I thought this is something really simple and when i looked at rsu, I felt it's something positive.

00:02:58: I didn't feel that need to be close too because its something that will happen eventually And to a certain extent he was very abstract He wasn't very scientific.

00:03:06: It wasn't something that I was going familiar with.

00:03:08: So I though Its not really urgent for me to pay attention.

00:03:12: Maybe we can quickly say what an RSU Is all about.

00:03:16: so basically your company promising you To give you stocks at a later stage.

00:03:23: And they promise you that it's going to give this to you if you are still part of the company on that very day?

00:03:30: Exactly!

00:03:31: So, is why you mentioned this as retention?

00:03:33: Yes and so... It looks really attractive.

00:03:36: Yeah but I think something should work for you If you're obviously aware of the implication thereof.

00:03:43: In my mind said just put in folder which was labeled i'll deal with.

00:03:50: and to my mind I was thinking, i'll deal with this on a beach while i'm still in the cold beverage thing that just right in front of me.I didn't feel like i understood it but i didn't think there's something that needed to pay attention immediately.

00:04:05: Days are busy times kind-of flying quickly out...and yeah!

00:04:10: The next moment you're at different view on an RSV.

00:04:16: So maybe you can take us with you, like what happened?

00:04:21: You did of course receive a regular salary monthly salary plus.

00:04:26: then your company promised to give those RSVs and then one sunny.

00:04:32: I don't know if it was the sunny day but one date vesting dates

00:04:36: arrived

00:04:37: And so

00:04:40: shares were given to me.

00:04:42: I was feeling like a rich man on that specific

00:04:46: date.

00:04:47: So you opened the bottle of champagne?

00:04:48: Yes, I was ready to celebrate my future kind of well-being.

00:04:53: and um... You know i was already starting to plan how I will spend money Of course!

00:04:58: And there are obviously various ways of doing it.

00:05:03: It's one of those opportunities where we feel like ''I've made it''.

00:05:06: This is what success really tastes like.

00:05:09: So as we all know, companies have different ways of explaining this data to you.

00:05:18: There were opportunities within the company for familiarising ourselves with information but it's not in a very ordinary way and usually HR is based on Germany or Netherlands so they always go back to your tax person And, you know I had a text person which was yourself but i thought...I had control over this.

00:05:45: So in my mind also maybe starting to spend money and then as we start filling the tax bill and kind of actually pull equity from these RSUs We end up with a textbook that may have some surprise element

00:06:03: Which is quite an understatement.

00:06:05: That was an under-statement for me, for sure!

00:06:07: In my case the stock had bested at a very high or much higher price that I then eventually had sold it as and because of their way structure in Switzerland where we do not have capital gains tax, let's say... Yes.

00:06:27: ...that actually exposed for my tax liability to the amount that it had pasted, and not the amount I had put in my pocket.

00:06:36: And there I was looking at a text bill where numbers were looking... Yeah well they certainly looked better than I understood them!

00:06:46: You go around as a doctor.

00:06:48: we always start getting a second or third opinion but the bottom line is the numbers weren't flying.

00:06:57: So this immense feeling of Guilt I guess because it's not just the number.

00:07:03: It's also the embarrassment of how could I miss this?

00:07:06: I'm supposed to be in control.

00:07:08: live every systematic approach.

00:07:10: you're understanding science.

00:07:12: Yes,

00:07:13: you are a scientist.

00:07:14: exactly How can i not keep numbers right on list?

00:07:18: so You know.

00:07:19: So he does brings me back to kind of really having a respect for what is your areas or expertise right Just as I don't expect you to go out and operate on patients.

00:07:30: Which is better?

00:07:30: Yeah, which is better for us!

00:07:32: I should also not be expected to understand or do my own taxes And i think the RSU has really shifted from something that was kind of a reward To almost like a purpose.

00:07:48: That didn't prepare myself.

00:07:52: It was unfortunately, you know a hard lesson.

00:07:55: There were sleep deprivation that went alongside with it and in effect I mean it affects the way that you engage with your partner or spouse In effects of ways to engage as well And then there's nothing.

00:08:09: level off is equal towards HR company.

00:08:13: At end-of-the day they are person which could really blame yourself because she didn't investigate, you didn't have the awareness and understanding of what is the implication.

00:08:26: So from today's perspective if a friend would tell you as part of my compensation I am receiving RSUs?

00:08:36: What would you recommend to this person?

00:08:38: I would recommend that this person make sure they actually understand in the country where you are residing.

00:08:48: So for my team which is internationally based across the world, I actually advise them to engage with a text person such as yourself at the earliest convenience because it only was planning.

00:09:04: and there's this saying if you failed plan then you planned to fail!

00:09:10: If plan ahead.

00:09:14: You need to sit down, you need to understand what is the implication?

00:09:17: Look at the Vesting dates and be able to have a conversation also with your HR partner inside of company.

00:09:24: that's just an example for you as time in life.

00:09:29: then we can have conversations with your tax partner really understanding financial implications And you know, what is the long-term plan?

00:09:40: What is the end game that you have with regards to money.

00:09:45: Yes like basically I mean You mentioned this feeling of I'm a rich man which we have to clarify That an RSU Is not something that it's making you poorer.

00:09:56: in the end It just...you need To pay taxes based on The value they Have.

00:10:02: On investing day thing is you can get yourself In trouble if you spend the money before putting away your money for taxes.

00:10:12: You can get yourself in trouble even when not selling anything to go buy something, but if value of shares declines because you will have to pay taxes on a higher level like values move in any direction... But keep it in mind!

00:10:32: I think what would've helped is on Vesting Day clear calculation of this is how much you will definitely need to pay on this.

00:10:43: You potentially would have sold shares in the very day, put money aside...

00:10:47: Which whatever like sales?

00:10:51: Exactly!

00:10:52: I think that's a pragmatic approach and not just file it into our deal with us later category because basically there that I'll deal with in lecture will come the same day.

00:11:02: you have a surprising task force and i have to say, it obviously was a lot of money.

00:11:07: It was a shock!

00:11:09: And it had implications.

00:11:11: they were not any embarrassing course for your anxiety.

00:11:14: but at the same time we sometimes need to forget what is the bigger feature?

00:11:20: Of our salary... Our bonus.... Our hardest use... These stock

00:11:25: options!!!

00:11:26: All these bear spot bonuses And all of these things add up in one year.

00:11:31: Yes, I do not live in separate boxes

00:11:33: now or even though they come in separate folders yet In your mailbox.

00:11:38: eventually that will hand together and if you don't understand what is the indication?

00:11:43: Of that?

00:11:44: You'll be where i was a couple of years ago with a rage ice and a disgruntled partner, really to sit down with yourself.

00:11:55: And plan how we're going.

00:11:56: take care of this because that requires an intense forward thinking Because you need to have strategy on how are your gonna cover it.

00:12:07: moving forwards I mean actually

00:12:09: Before you spend it or before It loses value because the value of your stocks is declining.

00:12:17: And had I hung on to it and sold at this point in time, then I could have said, I'm a rich man.

00:12:24: Because the rest would've been there for you to spend?

00:12:27: Exactly!

00:12:28: But i didn't... This was the lesson It was expensive school

00:12:34: fees.

00:12:35: Yeah

00:12:36: But you know..I am happy with new year to create awareness about this because Specifically in pharma, we're really good at creating awareness of diseases and the treatment of interventions.

00:12:52: But often we self-inflate it And... We can't rely on our HR partner to carry that weight for us because ultimately I'm responsible for my texts.

00:13:04: They are not looking on HR's door

00:13:07: And they won't pay for it?

00:13:09: Not even on your order.

00:13:10: No, no!

00:13:11: I

00:13:11: don't want to pay you taxes

00:13:12: as well That's not true.

00:13:16: So that...I would say that is a really important message.

00:13:19: It's really understand your salary Understand the structure Understand what they spend there Really understand what she wants do with her money and What is your financial situation and have strategy.

00:13:34: You sit with your tax partner, come up with the way that you want to really invest money in yourself anyway.

00:13:42: so I'm not saying don't enjoy it at all but be very careful!

00:13:48: Not just spend something...

00:13:50: Because a share of the cake needs to go?

00:13:53: Exactly

00:13:54: To the tax authorities which is when we're doubting this is correct.

00:14:01: As you said, if you are not aware it can get into trouble.

00:14:06: And there's so many different compensation models out there and there is RSUs... There're options!

00:14:13: So many many many different options and they aren't treated equally like each model comes with specific tax implications.

00:14:24: we just now discussed RSUs in more detail.

00:14:29: Someone listened to us that is like, oh actually it's something I'm receiving and i'm not one hundred percent sure how That is going to influence my taxes Also.

00:14:40: I would also advise Make sure you understand make sure your plan ahead Yes And make sure you have the money available Liquid Money Available to pay in a tax bill because the tax office doesn't deliver this cold drink with it.

00:15:00: And I have to say, you know everybody's situation is very unique.

00:15:05: You know HR purchasing form from a business point of view where everyone is sitting on the same zoom call and Everybody's getting the same information whether your intent mark or the US.

00:15:17: but ultimately it's a very personal thing.

00:15:21: and What we always notice this after the meeting?

00:15:24: We're just confused on higher level And even though we stay in water, you know?

00:15:29: We don't understand anything.

00:15:30: You can go on each trade and all of these other platforms where the things are... ...and when school yourselves but your situation is unique!

00:15:39: The only person who actually would understand that it's a person that you need to partner with as a tax advisor because like I said levels of expertise and I weren't going to do your job, then I don't expect you can do mine.

00:15:53: Please don't!

00:15:59: Yes no one survived me doing that.

00:16:01: yeah To sum it up It is something That we have been talking about in this podcast About other areas Of life where taxes come In.

00:16:16: It's always about awareness, it is not a sign of being not capable or intelligent.

00:16:23: If you seek help and advice... ...it is on the contrary!

00:16:30: You know your limitations but are aware that I need to get an expert answer.

00:16:38: this question properly ask.

00:16:42: You can ask chat GPT, you can ask ChatGPT anything but ChatGpT won't take any responsibility.

00:16:49: Chat GPD is not going to pay the taxable either

00:16:52: right?

00:16:52: Not at all.

00:16:53: and if Chats GPT gives you a wrong answer and you pointed out it will be like are you actually right with... I

00:17:00: think we need to acknowledge that complexity will always exist!

00:17:04: But It's important and you need to feel comfortable with it.

00:17:10: This will provide a view of better sleep, less anxiety... ...and really move from reacting towards forward planning.

00:17:19: That's very important!

00:17:21: And I think RSE news are completely manageable.

00:17:25: but with it comes the psychological burden that we need to understand and be able deal with.

00:17:34: Peace of mind is something which one can't buy.

00:17:38: Peace of mind is something that you need to earn and peace of mind, it's something that can only have when your partner with the right person.

00:17:45: It makes sure that we've actually had a forward thinking strategy on how are going to deal with what potential could be at the last test at the end?

00:17:56: Yes

00:17:57: so actually it was Willem who asked me to include this important topic in our podcast.

00:18:05: thank pointing out the importance of this, and to sharing your story with us.

00:18:12: You're very welcome!

00:18:14: And if we can help one or two people... Yes!

00:18:17: ...sparing them from their anxiety then it was worth all of that.

00:18:22: Okay thank you so much for sharing this with us today Willem.

00:18:26: Julia thanks for having me.

00:18:27: We will hear Bastian Thurneisen bring some lawyer expertise on this topic now.

00:18:35: Hello, Bastian.

00:18:36: I'm welcoming Bastian Tornheisen.

00:18:38: he's a text lawyer and we know each other from a campground in Lesotho actually.

00:18:45: so this is how we met.

00:18:46: funny side story.

00:18:48: thank you for your invitation.

00:18:49: hi Julia

00:18:50: We will not talk about campgrounds in southern Africa but we just heard Willem's Story of RSU's vesting at the latex bill happening The Year Later.

00:19:03: a very unpleasant surprise for him.

00:19:06: And I think the story of Williams is far more common than people admit, and i'm sure you've seen that as well – people are really surprised by how all this happens!

00:19:20: So we quickly discussed before recording.

00:19:23: there was an endless variety endless varieties.

00:19:34: Really?

00:19:34: Endless, yes!

00:19:35: And we could potentially talk about it for hours or days but... We won't.

00:19:40: So..we will talk about RSUs just like Willem received them and yeah the legal implications behind it.

00:19:48: Willem took us to his emotional journey he had with his RSUs.

00:19:53: so Bastian maybe you can give some clarity on how does this work.

00:19:58: I'm an employee i receive a salary And now my employer also gives me some RSUs.

00:20:05: What's next?

00:20:06: So, the good thing for Wilhelm Head is he's not the only one.

00:20:11: I can tell you so i have seen it many times in my practice that employees especially from multinational companies are surprised when they get a tax bill and There are some employee participations, whatsoever options shares or R is used.

00:20:30: Haven't thought about it?

00:20:31: so really he's not the only one but in the end The Tax Administration doesn't care So you need to pay a tax bill.

00:20:42: Speaking of R is Used.

00:20:44: It's important To understand how it works Or to Understand the Employee participation plan.

00:20:53: So mostly they are vested, so you're just entitled to receive certain amount or is used all the time?

00:21:02: So the employer promises me to give me one hundred exactly.

00:21:07: and then he tells me but I'm only giving them to you in two years'.

00:21:18: In

00:21:21: two years, let's assume I'm still with this company.

00:21:24: Then probably fifty percent West.

00:21:28: so you receive fifty of that hundred shares and That from a Swiss tax perspective the tax event.

00:21:37: So with the west thing You get taxed on The value Of the shares we received

00:21:44: On that very day

00:21:45: on that very date

00:21:46: not on today when they were promised to me Not on the day when I'm selling them, but on very day they best.

00:21:53: Yes

00:21:54: if there are listed so it's a listed company and many of the companies in Switzerland aren't listed.

00:22:01: then another principle applies.

00:22:03: But If we speak about listed shares than that value is relevant for tax purposes.

00:22:10: So this value comes onto your salary certificate which you receive on the year end.

00:22:18: So, the employer has to certify that employee participation on that salary certificate

00:22:24: and... Makes your net income go up by that amount?

00:22:28: And if it's a lot of shares at best this amount goes up by a lot

00:22:33: Exactly!

00:22:34: You also pay Social Security etc.

00:22:38: And it could be, I mean that's always the game you have to play.

00:22:43: That the shares don't have that value anymore The day you want to sell them.

00:22:51: So there is... There could be a mismatch but also they can increase in value of course.

00:22:58: But at date if we receive tax bill and realize i dont'have much cash And you want to sell the shares and, uh... The price of the shares have decreased tremendously.

00:23:13: Then you had a liquidity problem as well indeed?

00:23:16: Yes!

00:23:17: So one like there's two problems could arise.

00:23:21: One problem is that if you don't sell any share value drops.

00:23:25: You want it to settle your tax bill but the value doesn't match with your tax bills anymore.

00:23:32: Or when they invest in the shares like William did in a beautiful house.

00:23:40: Then it's not liquid anymore, he didn't spend the money and got rid of it for beautiful clothes... He enlisted but had what we called an liquidity mismatch.

00:23:52: so you have to house.

00:23:54: But then there was tax bill.

00:23:55: Yes

00:23:57: And normally the Tax Administration don't accept part your houses somewhere in Italy.

00:24:03: So they want see cash.

00:24:06: That's a common problem I see in practice for sure.

00:24:10: Yeah, so that's why it is really crucial to understand how your participation program works and what does... And then what that means for your personal tax situation?

00:24:24: Yes!

00:24:25: Especially with cross-border situations.

00:24:29: if you receive the RSU when you're resident outside of Switzerland You move to Switzerland.

00:24:34: It's different compared to, say if you're only in Switzerland resident or if you export these RSUs etc.

00:24:41: So you really need to understand what does that mean?

00:24:45: To my personal tax bill it's your own interest and its not the problem of your employer.

00:24:53: Yes That is why I often see also in practice.

00:24:55: they said My employer didn't tell me anything.

00:24:59: It's not his problem, it is your

00:25:01: problem!

00:25:01: What would be nice if the employer that gives out such RSVs informs their employees?

00:25:07: But this also what Willem told us.

00:25:09: there was information but he was more confused after than before.

00:25:15: And I mean they are complex?

00:25:17: Yeah

00:25:18: no doubt

00:25:19: These participation schemes... especially international or multinational companies.

00:25:25: they are very complex and also for i would say common lawyers in switzerland you don't understand it, To

00:25:52: everyone that has such RSUs, it's part of their compensation which is a great thing.

00:25:56: Absolutely!

00:25:57: It is important to be informed about the consequences prior taxes before

00:26:04: investing

00:26:05: because you might decide that the best day is when you sell all of them or at least what you need to settle your taxes for whatever but take an informed decision because the delayed, I mean you submit your tax return a year later.

00:26:24: You receive the tax bill like maybe you don't even realize then what actually happened.

00:26:29: and then you'll receive your tax bill another year or two later.

00:26:33: Actually it's really really unpleasant surprise if you weren't aware.

00:26:39: when imagining that debt import not paying on top of taxes We are really, really encouraging everyone to be on top of things and not blindly spend it or ignore.

00:27:01: And also you cannot discuss with your colleagues?

00:27:08: They might know as well!

00:27:09: Maybe the situation is completely different from their side.

00:27:13: so... the situation.

00:27:16: So you really need to be aware of your own personal situation, what does that mean for your own person tax bill?

00:27:23: Yes

00:27:24: and a lot of these RSUs don't live in Swiss portfolios.

00:27:30: they might be in a Morgan Stanley account in the US.

00:27:34: like it's very common we see RSUs being held on foreign accounts just because its in a foreign account doesn't not mean that it's not relevant for Swiss taxes.

00:27:46: It is just a different brand and its still mobile asset, yes!

00:27:51: And it IS relevant to your Swiss taxes because we've also seen people holding massive amounts in foreign accounts paying the income taxis.

00:28:03: they did NOT have any issues paying the Income Taxes but they forgot after investing becomes a share part of your taxable wealth and because it was in a foreign account, they didn't even cross their minds that it couldn't belong into the Swiss tax insurance.

00:28:21: The Swiss wealth tax?

00:28:22: Yeah I mean... That's not a tax optimization scheme just to hold your assets outside of Switzerland.

00:28:29: Whether it's a currency or another stock or fund

00:28:32: doesn't matter!

00:28:34: It only applies to real estate but that is what we are talking about.

00:28:39: as long as its movable property It's part of your Swiss wealth tax bill.

00:28:46: So from a boring lawyer perspective, we can just clearly say RSUs have an impact on your Swiss taxes.

00:28:57: Get info how and make sure you are able to send in your

00:29:03: tax bill Absolutely And not only Swiss taxes but probably also foreign taxes.

00:29:09: I mean, if you as explained playing beforehand the... If your or you received that RSUs when you were a resident outside of Switzerland this could also impact your foreign tax bill but also the Swiss tax bill once you relocate to Switzerland.

00:29:26: so really yeah it's unfortunate.

00:29:29: what do we need?

00:29:30: consider both worlds?

00:29:32: The Swiss world and the Foreign Tax World.

00:29:34: And in the end, it makes sense for you to understand what text bill.

00:29:40: You have to expect.

00:29:41: and again It's maybe not the best idea to ask chat GPT because you might get a first idea but To be sure that you are understanding it correctly and if we're taking into account all these international angles that you think about.

00:29:59: so your problem right

00:30:01: Absolutely absolutely.

00:30:03: I mean Also for tax specialists, it's not always easy to understand these plans.

00:30:09: So I don't think that chat GPT will understand this kind of plan.

00:30:14: Yes so be careful with that.

00:30:17: but as you said It gives your first idea But then have a second opinion For sure from an expert.

00:30:24: And no one expects an engineer or doctor?

00:30:30: Anyone out there who receives such RSUs themselves, there are experts for questions like that and please.

00:30:39: And in my experience it's cheaper to pay an expert than to pay the tax bill with interest.

00:30:48: you two about advice or know what wise?

00:30:50: Or be in trouble.

00:30:52: I mean Willem told us about emotional side how much it stressed him out.

00:31:03: listeners can relate that a tax bill of a few hundred thousands, which you don't expect gives some anxiety.

00:31:12: And

00:31:13: it's

00:31:14: very bad day and we don't want anyone to have that feeling.

00:31:19: because again RSUs are they're part of your compensation?

00:31:24: Most listeners won't doubt that income taxes are due on new incomes And so are they on our issues in the event of Westing?

00:31:36: It comes at an unexpected moment.

00:31:39: Absolutely, absolutely!

00:31:40: So thank you for bringing clarity to this sometimes overwhelming topic.

00:31:46: Let's hope it is a good thing and lots of areas in life but not when it comes to income tax lists... ...so its better be informed than aware of consequences.

00:31:59: Bastian, thank you so much for joining us today.

00:32:01: Thank you for the invitation!

00:32:03: Thanks.