Incentives for employees to achieve specific corporate objectives are either the provision to them of free shares or stock options in shares, which give them the right to buy shares of their own at a preferential price or of the parent (usually) company of the group.
The tax treatment of these incentives in the EU varies between member countries. On their basis, however, these tax treatments of these benefits by the employer to the employee, partner or shareholder follow the same logic.
by Thanos S. Chonthrogiannis
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More specifically:
1. Stock Options
Stock options are taxed on the grounds that they constitute either income derived from goodwill or income derived from rental services, and always depending on the time of their holding by the beneficiary (the period between the acquisition of the right (grant point) and the transfer of the shares).
In any case, the time of acquisition of this income shall be deemed to be the time of transfer (sale, donation, etc.) of the shares acquired through the exercise of stock options and not the time of exercise of stock options.
More specifically, stock options in shares of listed or unlisted companies on the stock exchange (and regardless of when they were granted) are taxed as goodwill income at an x1% rate (this tax rate is not the same for all EU member countries), subject to the retention of shares for at least twenty-four (24) months after the acquisition of the stock options and regardless of whether the employment relationship remains valid.
Especially for shares of non-listed companies on the stock exchange, start-ups, small or even micro-enterprises, the tax rate (x2%) is much smaller than that of listed companies (i.e. x2% < x1%) and where the following rules are cumulatively met:
These rules apply at the time of allocation of stock options:
1. These stock options in the shares are acquired within five years of the company’s formation.
2. The company providing the stock options in its shares has not been incorporated through a merger.
3. The shares are transferred after thirty-six months (36) of the acquisition of the stock
Listed Companies on the stock exchange
As capital gains resulting from the shares of listed companies on the stock exchange (taxed at a rate of x1%) is defined as the taxable capital gains resulting from the closing price of the shares of listed companies on the stock exchange at the time of the exercise of the stock option on the part of its holder and the disposal price of the stock option, i.e., the preferential purchase price of the shares by the employee-holder.
Unlisted Companies on the Stock Exchange
As capital gains taxable which arises from the shares (taxed at a rate of x2%, where x2%<x1%) of the non-listed companies is defined as the difference between the share price based on the value of the company’s own funds (book value of share) at the time of the exercise of the stock options and the disposal price of the stock options (the preferential purchase price of the shares).
On the other hand, if the shares from the exercise of stock options are withheld for a period of less than twenty-four (24) and thirty-six (36) months respectively, the resulting income is taxed as income from employment services (benefit in kind) based on the prevailing tax scale of the EU member country.
Moreover, if an additional profit (difference between the selling price of the shares and the stock value they had at the time of their acquisition, i.e., in the exercise of the right), that excess profit is taxed as capital gains by a transfer of capital at a rate of x1%.
However, if the holder (seller) of the shares from the stock options participates in the capital of the company at a rate of <1% he can be exempted from the tax x1% of the sale of the shares of a listed company.
2. Taxation of the Shares which acquired through Free Cost Provision
Where a company has established an internal framework of programs which require the achievement of specific objectives or the occurrence of a specific event with a view to giving shares in the form of free shares to an employee, a partner shall then the take-up of such a free supply of shares shall be exempt from payroll tax and shall be taxed at an x1% rate as goodwill income, provided that the shares have been transferred at any time after their reply. , by the beneficiary of the program.
Such corporate free share programs are:
- Restricted Shares Plan (RSP)
- Performance Shares or Performance Units
- Restricted Shares Plan
- Matching Shares or Employee Stock Purchase Plan
- Deferred Stocks etc.
