The Danish Finance Act: The possibility of "tax-free" share-based remuneration will be reintroduced in 2016

Today, the Danish government and its supporting parties in the Danish Parliament have - as part of the agreement on the Danish Finance Act - agreed to reintroduce the possibility for companies to grant their employees share-based remuneration without being taxed as salary. In future, employees will not have to pay tax until they sell the shares and in that case as equity income and not as salary, which means a lower taxation. Thus, companies will again be able to offer their employees individual share-based remuneration schemes with considerable tax advantages.

Today, the individual employee shares are taxed as ordinary remuneration at the time where the shares are acquired, while purchase and subscription rights for shares are also taxed as remuneration but not until the date of exercise of such rights. Consequently, the taxation amounts to up to approx. 56 per cent.

With the new rules, taxation will neither take place at the time of grant of the shares nor at the time of exercise of the purchase/subscription rights. Instead, the employees will not be taxed for a possible gain until they sell the shares - and in that case only as equity income with a rate of 27 or 42 per cent, depending on the size of the equity income. Thus, it is actually not a complete tax exemption.

The new rules are expected to correspond to the rules that were previously applicable under Section 7H of the Danish Tax Assessment Act, which was repealed in connection with the Danish Finance Act 2012 under the former government. This implies that the individual employee can be awarded shares or purchase and subscription rights for shares up to a value equivalent to 10 per cent of the employee's annual salary, provided a number of basic preconditions are otherwise fulfilled.

As was the case according to the previous rules, the company granting the shares will not have a right to deduct the expenses accrued in connection with the share-based remuneration. It is up to the individual company to decide whether all employees or only a few of them are to be offered share-based remuneration.

With the new rules, it will be far more advantageous to receive share-based remuneration, which means that Danish companies again have an excellent instrument to attract and retain qualified staff. The relevant bill is expected to be submitted during the spring of 2016.

Please contact us for further information in this respect and our possibilities to assist you in connection with incentive schemes.

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