Stock Option Tax in Europe

An option gives the right to buy a share at a fixed strike price. If the strike is set at market value at grant, there is normally nothing to tax at grant. The value shows up later as the spread between the strike price and the market value at exercise, and then as a further gain between exercise and sale, the same pattern described under employee equity tax.

Worked example. An employee holds 10,000 options with a strike of 1 euro. At exercise the shares are worth 6 euros, so the spread is 50,000 euros. In a country that taxes at exercise, that 50,000 is employment income even though nothing has been sold. If the shares are later sold at 9 euros, the extra 30,000 euros is a capital gain, and timing that exercise well often comes down to the exercise window.

The same 10,000 options under a UK EMI options plan with a market value strike would give no charge at exercise and one capital gains computation on the full 80,000 euros at sale.

• EMI is the main small company scheme. Options are granted at market value agreed with HMRC, with no income tax at grant or exercise, and capital gains tax at sale.
• EMI has company conditions on gross assets, employee numbers and qualifying trade, plus individual and total scheme limits, and grants must be notified to HMRC.
• CSOP is available where EMI is not, and since the 2023 changes it has a higher individual limit and no share class restriction.
• Unapproved options give income tax on the spread at exercise, plus National Insurance if the shares are readily convertible assets.
• All share plans feed the annual employment related securities return, due by 6 July after the end of the tax year.

The Netherlands taxes option gains as wage at exercise. Since 2023 an employee can elect, in writing, to defer the charge to the moment the shares first become tradable, which is aimed exactly at the dry income problem in private companies. The election has to be made at the right time and recorded in the payroll administration.

Germany taxes the spread at exercise as employment income. Section 19a EStG allows qualifying startups to defer that charge until sale, transfer or a long stop period, and Section 3 No. 39 EStG gives a small annual exemption for employee share participation. Because those conditions are narrow, many German startups use virtual shares that pay cash at an exit instead.

France has BSPCE, a warrant designed for young companies. There is no charge at grant or exercise, and the gain is taxed when the shares are sold, with the rate depending on how long the holder has been with the company. AGA free shares are a separate route with their own acquisition gain and sale gain treatment and an employer contribution.

Belgium is the outlier. Under the law of 26 March 1999, options accepted in writing within 60 days of the offer are taxed at grant on a lump sum percentage of the underlying share value. The employee pays tax up front on an option that may never be worth anything, but any later gain is generally free of further tax.

Irish unapproved options are taxed at exercise and the employee, not the employer, pays through the relevant tax on share options filing, historically the RTSO1, within a short deadline after exercise. That deadline is easy to miss and carries interest.

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.

Almost every regime depends on the strike price being at least market value at grant. Underpricing turns part of the grant into immediate income and can break the qualifying status of the whole award. The UK allows an advance valuation agreement with HMRC for EMI, which is the cleanest option where it is available.

• Document the valuation method and the date used for every grant round.
• Use the last priced round as a reference point, adjusted for the rights of the share class.
• Refresh the valuation when the company raises, not once a year by habit.