Bill: Favourable tax regulations on employee share remuneration

The previous tax regulations on employee shares, options and warrants are most likely returning. In February 2016, the Danish Ministry of Taxation introduced a bill regarding more favourable tax regulation.

Pursuant to the bill, shares, options and warrants which are granted to the employees will be taxed as capital gains on shares and not as salary. Furthermore, the employees will not be taxed at the shares until or if they are sold. Hereafter, taxation will be based on the rules of share-based payment.

Following conditions have to be met in order for the employees to avoid taxation until the shares are sold:

• The employee and the company have agreed that the provision of the statute applies to the grant
• The value of the granted shares cannot exceed 10 % of the employee’s yearly salary
• The shares must be granted by the employer company or an affiliated company. Furthermore, it has to be shares, options or warrants in one of these companies
• The shares cannot constitute a particular class of shares
• Granted options and warrants cannot be transferred
• Granted options and warrants have to contain a right for the employee or for the company to acquire or deliver shares

Pursuant to the bill, companies will be required to submit certain information to the Danish tax authorities.

As mentioned, the value of the shares cannot exceed 10 % of the employee’s yearly salary. The bill implies that the value of the shares is assessed when the actual exercise price for the options and warrants and the buying price for the shares are known, but at the latest when the employee acquires an unconditional right to the remuneration.

As a general rule, the basis for the calculation is the annual salary at the time the offer is made.

IUNO’s opinion

If adopted, the new statute provides companies with the possibility to offer employees share incentives on favourable tax conditions. However, companies do not have deductibility for the remuneration, as the remuneration in the form of shares, options and warrants are not taxable for the employee.

Furthermore, companies should be aware that the conditions of the employee stock option plan must comply with Danish employment laws, such as the Salaried Employees Act and the Stock Option Act forfeiture of options and warrants. An incentive scheme can, in worst case, be set aside as invalid regardless that it meets the tax related conditions.