Stock Dividend

General

Shareholders are urged to consult their own legal, financial or tax advisor with respect to their individual tax consequences relating to the allotment of Entitlements, the sale of Entitlements, the receipt of New Shares and the sale of New Shares in connection with the stock dividend.

The observations below are of a general and summary nature only and are not meant to replace competent professional advice. Individual situations of shareholders may vary from the description made below.

Stamp Duty and Withholding Tax

The issuance of New Shares by UBS is subject to a 1% issuance stamp duty on the nominal value of the newly issued shares. In addition, a 35% withholding tax will be due on the tax value of the allotment of the Entitlements (the sum of the nominal value plus the withholding tax gross-up). The issuance stamp duty and the withholding tax will both be paid by UBS.

The withholding tax can be fully or partially reclaimed from the Swiss tax authorities, depending on the tax domicile of the shareholders and/or the applicable double tax treaties.

Shareholders residing in Switzerland

Shareholders who live in Switzerland can reclaim the withholding tax on the dividend (CHF 0.00269 for each entitlement) if they duly declare the amount on their tax returns or income statements and fulfil all other conditions.

Natural persons who hold their shares as private assets

The distribution of entitlements to individuals residing in Switzerland who hold their UBS shares as private assets is taxed differently depending on the canton.

Cantons of Aargau, Appenzell Innerrhoden, Bern, Freiburg, Geneva, Glarus, Jura, Lucerne, Neuchatel, Nidwalden, Obwalden, Schaffhausen, Solothurn, Thurgau, Ticino, Valais and Zug
In these cantons, the issuing of bonus shares is considered to be taxable income for the local, canton and federal tax on the basis of the additional nominal value that the shareholder receives. The withholding tax that UBS pays is also considered to be taxable income. The taxable income per entitlement received is approximately CHF 0.00769.

The tax is based on the number of entitlements the shareholder receives and on the amount of the nominal value of these entitlements (proportional). The tax is owed irrespective of whether the shareholder exercises or sells the entitlements or forfeits them.

For example, if a shareholder owns 100 UBS shares, the taxable income will be as follows:

The sale of entitlements leads to a tax-free capital gain.

Cantons of Appenzell Ausserrhoden, Baselland, Baselstadt, Graubünden, Schwyz, St. Gallen, Uri and Zurich
For municipal and cantonal tax purposes in these cantons, the bonus shares or entitlements are not considered taxable income for natural persons who hold their shares in private assets. The withholding tax paid by UBS will be treated as taxable income. For the purpose of federal taxes in Switzerland, the (proportional) nominal value and the withholding tax paid by UBS will be considered taxable income. The taxable income per each entitlement received is approximately CHF 0.00269 for municipal and cantonal taxes and CHF 0.00759 for the federal tax.

The number of entitlements the shareholder receives is the basis for the municipal, cantonal and federal tax. The tax is owed irrespective of whether the shareholder exercises or sells the entitlements or forfeits them.

For example, if a shareholder owns 100 UBS shares, the taxable income will be as follows:

The sale of entitlements leads to a tax-free capital gain.

Canton of Vaud
Tax officials from the canton Vaud have not yet announced the tax method they will use.

Natural persons who hold their shares as business assets, and legal entities

If the shareholder holds the UBS shares as business assets, the taxation will depend on the accounting treatment of the bonus shares. A taxable income arises only if the shareholder books the entitlements or the bonus shares and/or the refund of the withholding tax as income on the income statement. If this is the case, the equity holding deduction may be applied provided the usual conditions are met. The sale of entitlements is subject to income tax on the gain realized.

Shareholders residing in the United States of America

United States Internal Revenue Service Circular 230 Notice: To ensure compliance with Internal Revenue Service Circular 230, shareholders of UBS are hereby notified that: (a) any discussion of US federal tax issues contained or referred to in this document or any other document referred to herein is not intended or written to be used, and cannot be used by shareholders of UBS for the purpose of avoiding penalties that may be imposed on them under the United States Internal Revenue Code; (b) such discussion is written for use in connection with the distribution of Entitlements and receipt of New Shares addressed herein; and (c) shareholders of UBS should seek advice based on their particular circumstances from an independent tax advisor.

Although not altogether free from doubt, we believe that the distribution of Entitlements to a shareholder of UBS who is a US person, and the receipt of New Shares by a shareholder of UBS who is a US person, should not be taxable except, as discussed below, for the gross up for the Swiss withholding tax. As a consequence, the tax basis in the Entitlements should be zero unless a shareholder properly elects in the shareholder’s tax return for the taxable year in which the Entitlements are received to allocate the tax basis of the shareholder’s UBS shares held before the distribution of Entitlements between the UBS shares and the Entitlements in proportion to their respective fair market values (although, due to some uncertainty as to the US federal income tax treatment of the Entitlements, it is possible that shareholders must allocate the tax basis of their UBS shares as if such election were made). The tax basis in each New Share received will equal the tax basis, if any, for the Entitlements surrendered in exchange for such New Share.

In the case of a shareholder of UBS who is a US person, the amount of the gross up for the Swiss withholding tax will be treated as a taxable cash distribution from UBS. If you are a resident of the United States or another country that has a double taxation agreement with Switzerland, the Swiss withholding tax paid by UBS can be partially reclaimed from the Swiss Federal Tax Administration. The remaining amount of the Swiss withholding tax imposed on the distribution of Entitlements may generally be taken as a foreign tax credit or as a deduction by such a shareholder, subject to complex limitations.

The sale of an Entitlement or a New Share by a shareholder who is a US person will generally be taxable. A shareholder will generally recognize gain or loss on the sale of an Entitlement or New Share equal to the difference between the shareholder’s tax basis in the Entitlement or New Share and the amount of cash received in the sale. The gain or loss will be capital gain or loss if the shareholder holds the Entitlement or New Share as a capital asset, and will be longterm capital gain or loss if the shareholder is deemed to have held the Entitlement, or has held the New Share, for more than one year at the time of sale. The deductibility of capital losses is subject to limitations.

A shareholder’s holding period in an Entitlement will include the shareholder’s holding period in the UBS share to which the Entitlement is allocated, but the holding period of a New Share will begin on the day after the shareholder receives the New Share.

Shareholders residing in the United Kingdom

The issuance of new shares by UBS should be treated as a capital transaction for UK tax purposes and will therefore benefit from roll-over treatment under UK tax regulations. In this event, shareholders will not be subject to tax on receipt of the New Shares; instead, their base cost in their existing shares will be spread between their existing and New Shares.

The Swiss withholding tax can be partially reclaimed from the Swiss Federal Tax Authority. The remaining amount of the Swiss withholding tax will not be refundable or creditable to UK-based investors.

A sale of Entitlements will give rise to a capital gains tax charge by reference to the amount received, although shareholders will be able to offset part of their base cost in their existing shares. (If the amount received is regarded as “small” by reference to the value of the remaining holding, there will be no immediate tax charge. Instead, there will be a reduction in the base cost of the remaining shares going forward.)

Shareholders residing in Germany

The allotment of Entitlements and New Shares will not trigger German income tax or trade tax at the level of a German tax resident shareholder.

The Swiss withholding tax paid by UBS can be partially reclaimed from the Swiss Federal Tax Authority. The remaining Swiss withholding tax paid on the stock dividend in respect of UBS’s German resident shareholders (either individuals or corporations) will not give rise to any refund claim or tax credit in Germany.

The tax treatment of a sale of Entitlements varies depending on the tax status and holding period of the shareholder concerned. Generally, if German individual shareholders sell Entitlements during the Entitlement Trading Period, this triggers a taxable capital gain of which half is taxable and half is tax exempt under the applicable Halbeinkünfteverfahren. The capital gains are not subject to tax if the individual holds less than 1% of all UBS shares as private assets, and the individual holds the underlying shares for more than 12 months. For German corporate shareholders, capital gains from the disposal of Entitlements may be subject to German corporate income tax and trade tax..

Shareholders residing in France

For French tax resident individuals, the distribution of Entitlements and the receipt of New Shares would likely not be subject to income tax in France. For French tax resident corporate shareholders, receipt of Entitlements would likely not give rise to corporate income taxation, and receipt of New Shares should not be a taxable event as long as the investor does not book the distribution as financial income or increase the book value of its participation as a result of the stock dividend. The foregoing is not however altogether free from doubt and shareholders resident in France should consult their tax advisors.

The Swiss withholding tax paid by UBS can be partially reclaimed from the Swiss Federal Tax Authority. The remaining Swiss withholding tax paid on the distribution of New Shares to UBS’s French tax resident shareholders (either individuals or corporations) will not give rise to any refund claim or tax credit in France insofar as the allotment of New Shares will not be subject to tax in France.

For French tax resident individuals, any transfer of the Entitlements or subsequent sale of New Shares will be subject to French income taxation. For French tax resident corporate shareholders, the sale of Entitlements or subsequent sale of New Shares will be subject to French corporate taxation.

Tax aspects for shareholders residing in Japan

The allocation of Entitlements to Japanese tax resident individuals and Japanese corporations is likely to be treated as dividend and fair value of the Entitlements at the time of allocation is subject to income tax for individuals and corporate tax for corporations. Also, withholding tax should be imposed. Furthermore, the Swiss withholding tax borne by UBS should be treated as dividend income and taxed in the same manner as above since this is paid out of retained earnings or earning reserve.

The Swiss withholding tax may be creditable as foreign tax credit if certain conditions are met.

The Swiss withholding tax paid by UBS can be partially reclaimed from the Swiss Federal Tax Authority. Under some circumstances it may be possible to deduct the remaining amount of the Swiss withholding tax paid by UBS.

However, there may be a small possibility that the Entitlement might be treated as effectively the right for stock split or allocation of new share and the allocation of Entitlements may not give rise to a tax event since the transaction is somewhat akin to stock split or allocation of new share to share holder though there is no equivalent transaction under corporate law in Japan.

In the hands of Japanese resident individuals, the disposition of Entitlements will be subject to capital gains tax at the flat tax rate, if there is any difference between the fair value of the Entitlement at the time of allocation (i.e. tax basis) and the sale proceeds by the disposition. In the hands of Japanese corporations, the disposition of Entitlements will be subject to corporate tax, if there is any difference between the fair value of the Entitlement at the time of allocation (i.e. tax basis) and the sale proceeds by the disposition.