Firstly, who can receive NSOs?

Direct employees

YES

EOR employees

YES

CONTRACTORS

YES

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⚠️ The tax information below is an extremely brief summary for standard situations of the referred relationship, and each situation may of course be different from the norm and have its own specificities. ⚠️

A more comprehensive set of information for this country and work relationship is available on Easop.

If you’re looking for more detailed information in this country (or if you are just curious about our global compliance offering and pricing), get in touch with us and we’ll tell you more about it! 💡

General Taxation

Learn about equity schemes and taxation policies in

the

Germany

At grant 👉 No taxation.

At exercise 👉 The spread (i.e. the difference between the fair market value of the shares at the time of exercise and the exercise price paid by the grantee) is taxed as salary income.

At sale 👉 The difference between the sale price and the fair market value of the shares at the time of exercise is taxed as capital gains. There are certain tax advantages subject to certain conditions.

At grant 👉 No taxation.

At exercise 👉 The spread (i.e. the difference between the fair market value of the shares at the time of exercise and the exercise price paid by the grantee) is taxed as salary income.

At sale 👉 The difference between the sale price and the fair market value of the shares at the time of exercise is taxed as capital gains.

At grant 👉 No taxation.

At exercise 👉 The spread (i.e. the difference between the fair market value of the shares at the time of exercise and the exercise price paid by the grantee) is taxed as any professional income.

At sale 👉 The difference between the sale price and the fair market value of the shares at the time of exercise is taxed as capital gains.

Tax advantages

Learn about equity schemes and taxation policies in

the

Germany

There are certain tax advantages, but they are subject to a few conditions and are not incredibly favorable.

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Benefit 1: Taxation deferral

Since January 1, 2024, the Future Financing Act (Zukunftsfinanzierungsgesetz, “ZuFinG”) allows, under certain conditions, taxes on employees' stock options to be deferred until sale. That tax deferral is not applicable if the shares granted are the shares of a parent company outside Germany (even for German employees of a subsidiary of that parent company). Local experts are disappointed about this restriction and hope that an upcoming law amendment will extend the scope of the tax deferral advantage.

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Benefit 2: Limited exemption on the spread

It’s possible to exempt a limited amount per employee, i.e. this amount is deducted from the spread normally taxable and is therefore tax-free.

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💡 A way to reduce taxation for the grantee would be to allow the grantee to “early exercise” the stock options (i.e. exercising stock options that have not vested yet) but early exercises are not always easy to manage from the company’s perspective and on the grantee's side it may increase the risks of paying an exercise price (and taxes thereon) on something which may happen to be eventually worth nothing later down the road.

Introduction

A more comprehensive set of information for this country and work relationship is available on Easop.

Regular employee

✅ You can definitely grant non-qualified stock options (NSO) to employees in Germany!

In a nutshell, what does taxation look like?

At grant 👉 No taxation.
At exercise 👉 The spread is taxed as salary income.
At sale 👉 The difference between the sale price and the fair market value of the shares at the time of exercise is taxed as capital gain. There are certain tax advantages subject to certain conditions.

💡 A way to reduce taxation for the grantee would be to allow the grantee to “early exercise” the stock options (i.e. exercising stock options that have not vested yet) but early exercises are not always easy to manage from the company’s perspective and on the grantee's side it may increase the risks of paying an exercise price (and taxes thereon) on something which may happen to be eventually worth nothing later down the road.

Employee via EoR

✅ You can definitely grant non-qualified stock options (NSO) to EoR employees in Germany!

In a nutshell, what does taxation look like?

At grant 👉 No taxation.
At exercise 👉 The spread is taxed as salary income.
At sale 👉 The difference between the sale price and the fair market value of the shares at the time of exercise is taxed as capital gain. T

💡 A way to reduce taxation for the grantee would be to allow the grantee to “early exercise” the stock options (i.e. exercising stock options that have not vested yet) but early exercises are not always easy to manage from the company’s perspective and on the grantee's side it may increase the risks of paying an exercise price (and taxes thereon) on something which may happen to be eventually worth nothing later down the road.

Contractor

✅ You can definitely grant non-qualified stock options (NSO) to contractors in Germany!

Note that granting stock options to contractors could increase the misclassification risk (i.e. the contractor relationship being requalified as an employer-employee relationship, with all tax consequences that can go with it). This will never be the only factor though, what counts primarily for determining the degree of misclassification risk are factors relating to the modalities of the services performed (control over the contractor’s work, exclusivity, term of the services, etc.).

In a nutshell, what does taxation look like?

At grant 👉 No taxation.
At exercise 👉 The spread is taxed as any professional income.
At sale 👉 The difference between the sale price and the fair market value of the shares at the time of exercise is taxed as capital gain.

💡 A way to reduce taxation for the grantee would be to allow the grantee to “early exercise” the stock options (i.e. exercising stock options that have not vested yet) but early exercises are not always easy to manage from the company’s perspective and on the grantee's side it may increase the risks of paying an exercise price (and taxes thereon) on something which may happen to be eventually worth nothing later down the road.

Pay attention to:

Note that granting stock options to contractors could increase the misclassification risk (i.e. the contractor relationship being requalified as an employer-employee relationship, with all tax consequences that can go with it). This will never be the only factor, aswhat counts primarily for determining the degree of misclassification risk are factors relating to the modalities of the services performed (control over the contractor’s work, exclusivity, term of the services, etc.).