What are Tax Rules?
Tax Rules automate the tax management process for equity events across multiple jurisdictions, plans and/or stakeholders. This feature helps you handle local tax requirements by automatically calculating withholding needs based on your company's specific setup and stakeholder information. The system provides recommendations based on your data to help you get started.
Step-by-Step Guide
0. Access Tax Rules
Go to Equity Events → Tax Rules
The Tax Rules page displays recommended tax rules based on your existing data such as stakeholder's residence information, grants and plans.
1. Review recommended Tax Rules
When you first access the Tax Rules page, Ledgy displays a table of recommended tax rules based on your existing data:
Each row shows a suggested tax rule
Rules are organized by Residency (e.g., Germany, United Kingdom)
The Plans column shows which equity plans need tax rules (e.g., "Company Share Option Plan, US")
A Setup button allows you to configure each recommended rule
These recommendations are automatically generated based on the stakeholder residencies and equity plans in your system. You'll need to configure each rule by clicking the "Setup" button to define tax rates and other requirements.
2. Set up Tax Rules
Create a new Tax Rule
Click on "+ Add Tax Rule" in the top right corner
Fill in the required fields:
Name: Enter a descriptive name for your tax rule
Tax Rate: Enter the withholding percentage (e.g., 20.00%)
Configure at least one filter for the tax rule:
Residency: Select the country of tax residence
Plans: Choose specific equity plans this rule applies to
Stakeholder: Select individual stakeholders for custom rules
Click "Enable" to activate the rule.
When multiple rules apply to the same stakeholder and equity event, they will automatically stack together, combining all applicable tax rates. This allows you to split different tax types into separate rules for better tracking and management.
3. Apply Tax Rules to Equity Events
When creating or managing equity events:
Tax Rules will be automatically applied based on the matching criteria (jurisdiction, plan, and/or stakeholder)
The system will calculate the required tax withholding amount
For example, when an option plan is being exercised, any rules that apply to that plan, jurisdiction, and stakeholder will be automatically triggered, ensuring proper tax treatment.
FAQs
Can I create custom rules for specific stakeholders? Yes, you can create rules that apply to individual stakeholders to handle unique tax situations or special cases. This is particularly useful for executives or employees with complex compensation arrangements.
Can I break out different types of taxes into separate rules? Yes, you can create multiple tax rules to handle different types of tax obligations separately. Instead of using a single rule with the total tax percentage, you can break it down into smaller, more specific increments. For example, for German stakeholders, you might create separate rules for:
Income tax withholding (42%)
Solidarity surcharge (5.5% of the income tax)
Church tax (8-9% of the income tax, if applicable)
This approach gives you better visibility into different tax components and allows for easier adjustments when only certain tax rates change. When all these rules apply to an equity event, they will stack together automatically to ensure the correct total amount is withheld.
How often are Tax Rules updated for regulatory changes? Tax rules need to be updated manually by your company whenever regulatory changes occur in relevant jurisdictions. Ledgy provides a platform for managing these rules, but your company is responsible for keeping tax rates and rules up to date. We recommend reviewing your tax rules quarterly or whenever significant regulatory changes are announced.