The four taxable moments
Tax on employee equity is not a single event. Each country picks a point where value is treated as received. Everything gained after that point is normally a capital gain, taxed under the personal investment rules rather than as salary, a distinction covered further under stock option tax.
| Moment | What is taxed | Typical instruments |
|---|---|---|
| Grant | Value of the right when it is awarded | Belgian options accepted within 60 days |
| Vesting | Value of shares as they vest | RSUs, some restricted share awards |
| Exercise | Spread between strike price and market value | Dutch, German and Irish unapproved options |
| Sale | Full gain over the amount paid | UK EMI and CSOP, French BSPCE, Danish Section 7P |
Taxing at sale is the founder friendly outcome. The employee only pays when there is cash from a sale, which removes the dry income problem entirely. See RSU tax for the mechanics.
Managing tax bills on illiquid paper gains
Dry income is a tax charge on paper value. An employee exercises options in a private company, the tax office treats the spread as salary, and the employee owes cash tax on shares that cannot be sold. In a country that taxes at exercise, this alone can make an option plan unusable, which is why instrument comparisons matter before choosing a plan.
- Use a qualifying regime where one exists, since most of them move the tax point to sale.
- Use virtual shares or phantom shares if the payout is always cash at an exit, so tax and cash arrive together.
- Keep exercise windows tied to a liquidity event so employees are not forced to exercise early.
- Where the law allows a deferral election, such as the Dutch tradability rule, document the choice at the time.
Country overview for option plans
| Country | Named regime | Taxable moment |
|---|---|---|
| United Kingdom | EMI, CSOP, unapproved | Sale for EMI and CSOP, exercise for unapproved |
| Netherlands | Wet aanpassing regime aandelenoptierechten | Exercise, or first tradability with an election |
| Germany | Section 19a EStG, Section 3 No. 39 EStG | Deferred sale or transfer under Section 19a, otherwise exercise |
| France | BSPCE, AGA free shares | Sale for BSPCE, acquisition and sale for AGA |
| Belgium | Law of 26 March 1999 | Grant, if accepted in writing within 60 days |
| Poland | Art. 24(11) PIT | Sale of shares for qualifying plans |
| Denmark | Section 7P Ligningsloven | Sale of shares |
| Sweden | Qualified employee stock options | Sale of shares |
| Spain | Startup Law 28/2022 | Exercise with an exemption band and deferral |
| Ireland | KEEP, unapproved options | Sale for KEEP, exercise for unapproved |
Rates, thresholds and qualifying conditions change with each national budget. Treat the figures here as orientation and confirm the current position with a local tax adviser before you grant.
Employer withholding and reporting duties in Europe
The company usually has to report grants and taxable events even when it owes no tax itself. Missing an annual return is a common and avoidable penalty for startups that granted options to staff in another country.
| Country | Company duty | Timing |
|---|---|---|
| United Kingdom | Annual ERS return, and EMI grant notification | ERS return by 6 July after the tax year |
| Netherlands | Payroll withholding at the taxable moment | With the payroll run |
| Germany | Wage tax withholding and Section 19a records | With the payroll run |
| France | Report BSPCE and AGA awards in payroll filings | Annual |
| Ireland | Employer share scheme returns | Annual |
Selecting tax efficient equity plans for employees
Start from the countries where your team actually sits. Pick the qualifying regime in each country if you can meet its conditions, and accept a simpler virtual plan where you cannot. A plan that is administratively clean and taxed at sale beats a clever structure nobody can explain.
- One team in one country: use the local qualifying regime.
- Team spread over several countries: use one master plan with country appendices.
- Contractors and advisers: most qualifying regimes require employment, so expect standard income tax treatment.
Timing questions employees raise most often
- When do employees actually pay tax on equity?
- It depends on the country and the instrument. Qualifying regimes in the UK, France, Denmark, Sweden and Poland generally push the charge to the sale of the shares. Standard option plans in the Netherlands, Germany and Ireland are taxed at exercise.
- Does the company pay tax as well?
- Often yes, through employer social security on the gain, and always through reporting duties. Qualifying regimes usually reduce or remove the employer charge.
- What happens if an employee moves country during vesting?
- Most countries split the gain over the vesting period and tax the part earned while the employee was resident there. Both countries can claim part of the same gain, so treaty relief and payroll advice matter.
General information for founders, not legal or tax advice. Thresholds and rates change, so confirm the current position with an adviser in the relevant country before granting.
Social security and employer cost
Income tax is only half of the cost. When equity gain counts as employment income it usually also counts as pay for social security, which adds an employer charge on top of the employee charge. Qualifying regimes often remove or cap that charge, which is where most of the saving sits.