According to several German newspapers (e.g. Handelsblatt), German Federal Minister of Finance Christian Lindner proposed new terms for employee participation. The proposal aims to decrease taxes payable on employee options or employee shares. Generally, giving equity to employees can trigger dry income for the employee, i.e. taxable income on assets, which cannot be (easily) exchanged into cash (to pay taxes). This issue applies in Germany, but also in other jurisdictions including Austria. Dry income is generally the major roadblock for "real" (equity-based) employee participation programmes. Lindner now wants to solve the situation in Germany by moving the due date for such taxes on dry income to 20 years after the grant (with potential for another extension). Also, the tax allowance on employee shares will be increased from EUR 1,440 to EUR 5,000. The new rules will further apply to a larger group of companies, i.e. companies with not more than 500 employees (instead of 250 employees), not more than EUR 100m in revenue (instead of EUR 50m) and a balance sheet sum of not more than EUR 86m (instead of EUR 43m). It remains to be seen whether the proposal will find a corresponding majority and whether the proposal is generally accepted. According to another Handelsblatt article, however, the reaction of the start-up scene in Germany was mixed. Major points of criticism include that EUR 5,000 is far too low and that there is still a tax risk (even if the tax is payable only after 20 years). Also, the thresholds for eligible companies are too low, as they would exclude German scale-ups.From an Austrian point of view, we look forward to watching what our German neighbours do next and how the discussion will unfold. This is because the Austrian start-up scene is in a similar situation – dry income is a big problem when granting equity to employees. It would certainly help to at least answer specific questions in the Austrian tax system, such as how to properly (and easily) valuate start-up participations. The absence of clear (and ideally start-up-friendly) valuation rules is an additional risk when dealing with start-up participation programmes. Lawmakers, we look forward to an efficient solution for the Austrian market!
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
