You can definitely grant non-qualified stock options (NSO) to local residents in Croatia!

It’s safe, easy to put in place and there are certain tax advantages if the shares are held for more than 2 years after the stock options have been exercised.

NSO

Here’s in a nutshell how it would be taxed:

• There’s no taxation at the time of grant.

• When the grantee exercises the stock options, the difference between the fair market value (FMV) of the shares at the time of exercise and the exercise price would be taxed as capital based income, at a flat 20% tax rate. No social security contributions would apply.

• At the time of sale of the shares, the difference between the sale price and the FMV of the shares at the time of exercise would be taxed as capital gains at a flat 10% tax rate, unless the shares are held for more than 2 years (in which case the capital gains will not be taxed).
  
  
• There are additional surcharge taxes payable in Croatia, that depend on the grantee’s place of residence within Croatia (ranging from 0% to 18%, 18% being applicable if the grantee resides in the Zagreb area). These additional surcharges will apply to both taxation at the time of exercise and taxation at the time of sale (if any).  

The company won’t have to report anything to the Croatian authorities.

It will be the grantee’s sole responsibility to report gains and pay taxes at the times of exercise and sale, and the company won’t have to withhold anything from the grantee’s salary.

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NSO

You can grant non-qualified stock options (NSOs) to local residents employed via EoR in Croatia.

• There’s no taxation at the time of grant.  

• When the grantee exercises the stock options, the difference between the fair market value (FMV) of the shares at the time of exercise and the exercise price would be reported by the grantee in his/her annual tax return and taxed as “other income”, which is taxed at a flat 20% tax rate. Social security contributions (pension insurance) would also apply.

• At the time of sale of the shares, the difference between the sale price and the FMV of the shares at the time of exercise would be taxed as capital gains (taxed at a flat 10% tax rate), unless the shares are held for more than 2 years (in which case the capital gains will not be taxed). No additional social security contributions would apply.
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• There are additional surcharge taxes payable in Croatia, that depend on the grantee’s place of residence within Croatia (ranging from 0% to 18%, 18% being applicable if the grantee resides in the Zagreb area). They will apply to both taxation at the time of exercise and taxation at the time of sale.  

The company and the EoR won’t legally have to report anything to the Croatian authorities. It will be the grantee’s sole responsibility to report gains and pay taxes at the times of exercise and sale.  

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NSO

You can grant non-qualified stock options (NSOs) to local residents employed as contractors in Croatia.

• There’s no taxation at the time of grant.  

• When the grantee exercises the stock options, the difference between the fair market value (FMV) of the shares at the time of exercise and the exercise price would be reported by the grantee in his/her annual tax return and taxed as “other income”, which is taxed at a flat 20% tax rate. Social security contributions (pension insurance) would also apply.

• At the time of sale of the shares, the difference between the sale price and the FMV of the shares at the time of exercise would be taxed as capital gains (taxed at a flat 10% tax rate), unless the shares are held for more than 2 years (in which case the capital gains will not be taxed). No additional social security contributions would apply.
  
  
• There are additional surcharge taxes payable in Croatia, that depend on the grantee’s place of residence within Croatia (ranging from 0% to 18%, 18% being applicable if the grantee resides in the Zagreb area). They will apply to both taxation at the time of exercise and taxation at the time of sale (if any).  

The company won’t have to report anything to the Croatian authorities. It will be the grantee’s sole responsibility to report gains and pay taxes at the times of exercise and sale.

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