An employee share incentive plan (SIP) enables employees to acquire and hold shares in their employing company. They are generally implemented by employer companies in order to incentivise and retain employees (participants), and for such participants to receive indirect benefits from the appreciation in the growth of the company. Therefore, whilst such schemes are beneficial to the employee, they indirectly benefit the employer company. Employees with a vested interest in the success and performance of a company are more motivated to work, as their investment is based upon the performance of the company. SIPs can potentially lead to tax benefits for the employer company and the employee.
A SIP is typically established in a tax-neutral jurisdiction, structured as a trust and where there is easy access to appropriate levels of administrative expertise. It would be specifically structured as a non-charitable purpose trust. Typically, the Mauritius trust will buy shares of the company using company funds or borrowed money. The trust then grants options to purchase the company's shares to the employees. The options vest over a number of years and are exercisable at a pre-determined price. Once the employees acquire the shares, they are not allowed to resell them for a certain number of years. In addition to offering a modern and forward-looking legal framework for the establishment and management of trusts, Mauritius also has a number of attractions which make it an ideal jurisdiction for establishing an SIP. The jurisdiction combines the advantages of an international financial centre with no capital gains tax, no withholding taxes, a low tax-base, confidentiality and free repatriation of profits and capital, together with the possibility of treaty-based tax planning through its network of double-taxation avoidance treaties.