Employees can participate in the success of the company. This can strengthen the bond with the employer and become a financial source of support for employees. However, the desired forms of participation are as different and tax-challenging as the paths that can lead to success. An overview:
The traditional employee participation
These models are aimed at the entire workforce and allow limited amounts to be contributed to the participation model each year. The big advantage for employers and employees: up to an annual allowance of 2,000 euros, according to Section 3 No. 39 EStG (Income Tax Act), the granting of participation and the conversion of a one-off payment (such as the Christmas bonus or monthly installments) are tax and social security-free. The gross amount is credited directly to the investment account. However, interested employers should think carefully about the structure in terms of corporate law.
Participation in the start-up scene
During the founding and growth phase, start-ups are often not economically able to pay high cash compensation to their employees. Investments are an attractive alternative. In the past, the tax liability at the time of granting, the valuation of the shares and the handling of possible loss scenarios were problematic. Section 19a EStG, among other things, opens up the possibility of subsequent taxation at the time of sale and also contains regulations on valuation and loss. However, due to the complexity, legal advice is always advisable.
Virtual investments (Phantom Stock Awards)
Those who shy away from corporate law challenges often turn to virtual participation models. Another advantage is its easy administration. The employee does not receive any shares, but is treated financially like a shareholder and is entitled to remuneration if the contractually agreed goals are achieved. The remuneration itself is subject to general income tax
Regulations. The allowance is not applicable.
Stock options
Stock options include the right to buy or sell shares in a company at a specific price on a specific day. The granting of the option is generally not relevant for income tax purposes. However, employers must determine the monetary benefit at the time of exercise (exit) and subject it to wage tax. Particular challenges arise for employees who worked both at home and abroad during the retention period.
Management investments
The tax classification of executive share programs can be challenging. It is advisable to coordinate the wage tax consequences with the tax authorities both at the time of granting and in the event of sale (exit). The decisive factors are valuation questions at the time of acquisition and the tax classification of the capital gains as wages or as (favored) income from capital assets.
New ways?
The author was recently asked whether the monthly so-called 50 euro exemption limit for benefits in kind also applies if a company gives employees shares in an ETF savings plan or in the case of monthly additions to a stock portfolio. That can only be answered with “It depends”. Reimbursement of costs or a cash payment for a specific purpose
but not favored.
Author
Stephanie Saur is a tax advisor and partner at Grant Thornton. She specializes in particular in advising on income tax.
