Tax treatment of benefits in kind

Tax treatment of benefits in kind

1. Granting of free shares (“Shares award plans”) [article 42A par. 3 of L.4172/2013, hereinafter as “ITC”]

First, it should be noted that, according to article 14 par.1 of ITC, the benefit in kind in the form of granting of free shares that is obtained by an individual from a legal person/entity in the context of plans in which the achievement of specific objectives or the occurrence of a specific event is set as a condition for this granting, is exempted from the calculation of income from employment. Therefore, at the time of granting, the individual does not obtain income from employment.

The income that arises for an employee /partner/shareholder in the form of free shares granted by a legal person/entity under share award plans (such as: restricted Stock Units (RSUs), performance shares or performance units, restricted shares plan, matching shares or employee stock purchase plan, deferred stock, etc.), in which the achievement of specific goals or the occurrence of a specific event is a condition for their disposal, is considered capital gain and is taxed at a rate of 15%, provided that the shares are transferred by the beneficiary at any time after their acquisition.

Calculation of the capital gain – cases:

• For shares of unlisted companies, the capital gain is equal to:
• the sale price, as stated in the transfer agreement, if it exceeds the value of the share, as determined at the time of the free granting, or
• the value of the share at the time of the free granting, as it is determined based on the value of the company’s net equity (intrinsic value of share), if the sale price is less than the value determined at the time of the free granting.

In both cases, the resulting capital gain (capital gain of Article 42A of ITC) is taxed at a rate of 15%, as above, plus special solidarity contribution.

For shares of listed companies, the capital gain is equal to:

• the closing price of the share on the stock exchange at the date of the free granting of the shares, provided that the sale price of the share is equal to or less than the closing price and it is taxed at the above rate of 15% (capital gain of Article 42A of ITC) plus special solidarity contribution.
• If the sale price is higher than the closing price of the share on the stock exchange at the date of the free granting of the shares, then, in addition to the above, the excess amount is subject to income tax for individuals (capital gain of Article 42 of ITC) and is taxed as follows:
• if the employee-transferor participates in the share capital of the company with a percentage of less than 0.5%, the excess amount is declared as exempt income and it is subject only to special solidarity contribution, which is calculated according to the following scale:

Special solidarity contribution
Income (€)	Tax rate (%)
0 – 12.000	0%
12.001 – 20.000	2,2%
20.001 – 30.000	5%
30.001 – 40.000	6,50%
40.001 – 65.000	7,50%
65.001 – 220.000	9%
>220.000	10%

• if the employee-transferor participates in the share capital of the company with a percentage higher than 0.5%, the excess amount is declared as capital gain and is taxed at a rate of 15% plus special solidarity contribution which is imposed according to the above scale.

2. Stock options [article 42A par. 1 and 2 of ITC]

Income arising for an employee/partner/shareholder from a legal entity in the form of stock options, as determined at the time of exercise, and regardless of whether the employment relationship continues to exist or not, is considered capital gain, which is taxed at a rate of 15% plus a special solidarity contribution, provided that the shares are transferred after the completion of twenty-four (24) months from the acquisition (i.e. “grant”) of the option.

In case the income arises from a legal entity that is not listed on the stock exchange and it is a newly established small business or a very small business, it is also considered capital gain, but it is taxed at a rate of 5%, provided that the following conditions are cumulatively met:

• the options are acquired within five (5) years from the establishment of the company,
• the company has not been incorporated through merger, and
• the shares are transferred after the completion of thirty-six (36) months from the grant of the options.

However, in the event that the shares are transferred before the completion of twenty-four (24) months from the grant of the options or thirty-six (36) months respectively in the above cases, the capital gain is considered as income from employment and is taxed in accordance with the following scale (plus special solidarity contribution):

Income amount (€)	Tax rate (%)
0 – 10.0000	9%
10.001 – 20.000	22%
20.001 – 30.000	28%
30.001 – 40.000	36%
40.001 – ….	44%

In all the above cases, the time of acquisition of the income is the time of transfer of the shares acquired through the exercise of the option. It should be noted that the term “transfer” in the above cases includes not only the sale, but also the donation, parental gift or inheritance. This is because any subsequent transfer of the shares free of charge does not affect the benefit that resulted from their acquisition at a preferential price.

Calculation of the capital gain – cases:

• For shares of listed companies, capital gain is defined as the difference between the closing price of the share on the stock exchange at the date of exercise of the option and the grant price of the option.
• For shares of unlisted companies, capital gain is defined as the difference between the share price based on the value of the company’s net equity (intrinsic value of share) at the time of exercise of the option and the grant price of the option (preferential acquisition price of shares).

It is re-iterated that the above capital gain will be taxed either as capital gain of Article 42A of ITC at the rate of 15% or as income from employment at the above-described tax scale, depending on the time of the transfer of the shares, as discussed above.

• The additional income obtained due to the transfer of the shares at an even higher value than the one they had when they were acquired, i.e., when an extra gain arises in addition to the benefit of acquiring the shares at a preferential price, is taxed as capital gain under Article 42 of ITC at the rate of 15% plus special solidarity contribution. At this stage, i.e., when the shares are transferred, any such additional income is determined as the difference between the sale price of the shares and the value they had at the time of their acquisition, i.e., at the time when the option was exercised. This is because the difference between the value paid (grant price of the option) and the value of the share at the date of exercise of the option, has already been taken into account when calculating the income from the exercise of the stock option.

 

* The information is accurate to the best of our knowledge as at the time of writing. We have no obligation to update it. We accept no responsibility against any third party who is not a client of the firm and has not signed the terms of our engagement.