Are Employee Stock Options (ESOP) Subject To Personal Income Tax?

Key takeaways

• Tax on stock awards is only incurred when an employee transfers (sells) the shares, not at the moment they are granted.
• Whether bonus shares are taxed depends on the time of sale, not the time of receipt.
• The responsibility for declaring and paying the tax on behalf of the employee falls to an organization, such as a securities company or the issuing company, not the individual.
• Employee Stock Ownership Plans (ESOPs) require a clear compliance process to avoid legal risks.

Company-awarded shares are considered a form of employee benefit or additional compensation. As such, the law treats them as taxable income to ensure fairness across different types of employee rewards, whether paid in cash, in kind, or in shares. Personal income tax on stock awards refers to the tax imposed on an individual’s income when they receive shares from the company, for example through an Employee Stock Ownership Plan (ESOP) or as a performance-based reward.

Are bonus shares subject to personal income tax?

Under current regulations, employees are not required to pay personal income tax at the time they receive bonus shares from the company. The tax obligation only arises when the individual transfers (sells) those shares.

This mechanism delivers a dual benefits for both employers and employees:

For employers: ESOP programs can be implemented without immediate cash outflow pressure associated with cash-based rewards. This gives organizations a powerful tool to retain and motivate talent over the long term, while enhancing the overall attractiveness of the employee value proposition. Additionally, ESOPs allow companies to retain earnings for reinvestment and business expansion.

For employees: Holding shares fosters a stronger sense of recognition and ownership. As shareholders, employees are more motivated to contribute to the company’s growth and performance. When business results improve, share value typically increases, creating direct financial upside for employees.

When employees decide to sell their awarded shares, the resulting income is taxed from two perspectives:

• It is treated as employment income, as bonus shares are fundamentally a form of compensation granted by the company to reward performance and encourage long-term engagement.
• It is also subject to personal income tax on securities transfer, arising from the sale transaction itself.

This dual tax treatment creates a flexible financial planning tool, allowing employees to choose the timing of sale based on personal financial needs and market conditions—thereby optimizing both personal gain and the effectiveness of the company’s reward strategy.

Personal income tax from stock awards

How is personal income tax declared for employee stock awards?

According to Decree 126/2020/ND-CP, where ESOP shares are issued by a Vietnamese company, the responsibility for tax declaration and payment on behalf of employees does not rest with the individual, but rather with the issuing entity or relevant intermediaries, depending on where the securities are traded.

This mechanism offers several key advantages:

• Reduced administrative burden for employees
• Lower risk of errors in tax filing through professional support
• Enhanced transparency in ESOP tax management

For shares traded on a stock exchange

For listed shares, tax administration is generally streamlined and transparent. Responsibility for tax declaration and payment typically lies with:

• Securities companies or commercial banks where the individual holds a custody account
• Fund management companies where investment portfolios are entrusted

These institutions are usually equipped with automated tax systems that can calculate and withhold taxes at the point of transaction, ensuring employees receive net proceeds accurately and efficiently, while maintaining full compliance.

For shares not traded on a stock exchange

For unlisted shares, tax responsibilities are more complex and depend on the legal status and management structure of the securities:

• Public companies with centralized registration: The securities company or custodian bank where shares are held will handle tax obligations
• Private joint stock companies with authorization arrangements: The authorized securities company managing the shareholder registry will be responsible for declaring and paying taxes on behalf of employees

Stock-based compensation represents a progressive HR strategy that enables businesses to not only attract but also retain top talent over the long term by sharing organizational success. However, the efficacy of an Employee Stock Ownership Plan (ESOP) hinges on the company’s ability to navigate and comply with the accompanying regulatory and legal obligations. CEOs should immediately direct the establishment of a robust stock tax compliance framework, standardize payroll calculation processes, clearly delineate responsibilities for each type of equity transaction, and invest in the specialized expertise required to safeguard both corporate interests and employee rights.