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The Taxation of Stock Options After the New Startup Law

Stock options is a term that refers to the process by which employees are granted the right to buy shares or stock in the company at a fixed price after a certain period. In general, the regulations establish that an employment income in kind is produced when the employee exercises the right to the option of the shares while when the employee sells them a capital variation (“variación patrimonial”) is produced, in both cases, they are income to be included in the employee’s Personal Income Tax return.

The new regulations on emerging companies modify the exemption regime for this income:

  • It raises the amount of the exemption of work income in kind generated with the exercise of the aforementioned option, from 12,000 to 50,000 euros per year if the delivery of shares to employees is made by emerging companies. For the rest, the exemption of the first €12,000 is maintained.
  • For the specific case of start-ups, the obligation for the offer of stock options to be made under the same conditions for all employees of the company is eliminated.
  • In the case of shares granted to the employee before the entry into force of these modifications, i.e. on 1st January 2023, to benefit from these more favourable conditions recently approved, the company had to meet the requirements of being considered a start-up at the time the stock option was granted.
  • The valuation of the shares will be based on the valuation established by an independent expert in the last capital increase (“ampliación de capital”) if there has been one during the year before delivery or, failing that, on the market value.

Another change has been approved about the deferral of taxation of the income from work in kind generated with the exercise of the option. It is specified that for the delivery of shares in start-ups, the part that is not exempt because it exceeds the aforementioned threshold of 50,000 euros, will be taxed in the year in which one of the following circumstances occurs:

  • The company becomes listed on a stock exchange or any multilateral trading system.
  • The taxpayer’s shares are sold.
  • In any case, once the period of 10 years from the delivery of the shares has elapsed.

This deferral of taxation of the income from work in kind will mean that in most cases this income will go from being taxed at the time of exercising the option to being taxed at the time of sale and will have significant tax effects for the taxpayer.

If you have any doubts related to this or other tax, accounting, or legal issues, please do not hesitate to contact our tax advisors in Barcelona for a entrepreneurs and startup consultancy.

 

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