You can definitely grant non-qualified stock options (NSO) to local residents in Italy. It’s a good way to incentivize your team members without too much hassle!

NSO

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

• In principle, at the time of 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) will likely be taxed as regular income and be subject to income tax and social security contributions. There might be an applicable tax benefit to exempt the social contributions payments.
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• After exercising, the grantee will need to pay 0.2% IVAFE taxes on the owned shares.
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• At the time of sale, the gains will be subject to capital gains tax at a rate of 26% without any social security charges.

NSO

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

• At the time of 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) will likely be taxed as professional income and be subject to income tax and social security contributions.
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• After exercising, the grantee will need to pay 0.2% wealth tax on assets held abroad (IVAFE - “Imposta sul valore delle Attivita` Finanziarie detenute all` Estero”) on the owned shares.
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• At the time of sale, the difference between the sale price and the fair market value of the shares at the time of exercise will be subject to capital gains tax at a rate of 26% without any social security charges.