Denmark: Tax Relief on Employee Stock Options
Denmark has approved a new method of taxing employee share allocations and stock options. The new legal amendment (430/2016) will come into effect July 1, 2016.
The changes allow companies to give up on a corporate tax deduction in lieu of favorable tax treatment for employees who choose to invest in the company. Employees can gain significant tax benefits if their companies chose to apply for them.
Currently, company shares are taxed at the same level as an employee’s salary upon distribution. With the new method, such instruments will remain tax-free until sold, after which they will be treated as capital gains as opposed to personal income.
This means taxation of shares will not exceed 42 percent, as opposed to the highest marginal income tax rate of around 56 percent. But companies that do apply this method, cannot avail a corporate tax deduction on the distribution.
To avail these benefits several conditions need to be met. These include:
- Only salaried employees in a single company or group of companies are eligible;
- Employees can only receive shares and stock options with a value of up to 10 percent of their annual salary, including company pension;
- Both the employee and company must agree to the scheme’s enactment and;
- Allocated shares cannot be of a new type or class.
The employer is also required to provide certain information to the nation’s Tax Authority (SKAT) following the distribution.
For companies that do not apply for the tax relief option, existing rules (that generally allow a 22% corporate tax deduction) continue to apply.
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