The basic charge on a share award
If an employee receives shares for less than they are worth, the difference is employment income. A free award of shares worth 20,000 euros is taxed like a 20,000 euro bonus, but without any cash to pay the bill. That is why direct share awards are usually reserved for the earliest days, when the shares are worth very little.
Awarding shares before a priced round is far cheaper in tax terms than awarding the same percentage after one. The percentage is identical, the taxable value is not.
Restricted shares and vesting
Restricted shares are issued now and can be bought back or forfeited if the holder leaves before the restrictions lapse. Countries differ on whether the charge falls at issue on the restricted value, or later when the restrictions fall away and the value is higher.
In the UK, a Section 431 election lets the employee pay income tax on the full unrestricted value at acquisition, so all later growth is a capital gain. It must be made within 14 days of acquisition, and missing it is one of the most common and expensive administrative errors in UK share plans.
Share award tax across different countries
| Country | Point to watch |
|---|---|
| United Kingdom | Section 431 election within 14 days, and growth shares are widely used |
| Netherlands | Discount on the share value is wage at the moment of acquisition |
| Germany | GmbH share transfers require a notary, which pushes many companies to virtual shares |
| France | AGA free shares are the structured route for awarding shares to employees |
| Spain | The startup law exemption band can cover part of the value of shares received |
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.
Administration and the cap table
Real shares change the shareholder register, which means signature collection at every round, transfer restrictions to police and leavers to buy back. Before choosing shares over options, check that the buyback mechanics and the funding of that buyback are written into the articles and the award agreement.
What employees ask about share award tax
- Are growth shares a way to avoid tax?
- No. They reduce the value received at award, which reduces the income tax charge at that point. The growth above the hurdle is still taxed, as a capital gain when the shares are sold.
- What happens if the employee leaves before vesting?
- Restricted shares are normally bought back at the price paid or at nominal value. That mechanic has to be in the articles and the award agreement to be enforceable.
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.