Tax treatment of listed shares and stock options
1. Tax treatment of listed shares, where the seller also holds stock options
The Greek law (article 42 par. 1 (b) of the Greek Income Tax Code – “ITC”) provides for an exemption from capital gains tax of 15% on the capital gains derived from the transfer of listed shares where the seller holds less than 0.5% of the listed company’s share capital.
The question of whether stock options are taken into consideration for the determination of the holding percentage in order to assess the application of the tax exemption is not explicitly regulated by the Greek tax law.
However, stock options, by their nature, do not constitute part of the company’s share capital until they are exercised. In other words, they represent a right to acquire shares and are not taken into account in calculating the share capital until the relevant right is exercised.
Moreover, based on Circular 2208/2020 https://www.taxheaven.gr/circulars/35193/e-2208-2020 (which regulates the tax treatment of certain stock options, see further below) as well as document ΔΕΑΦ 1055728 ΕΞ 2015/23.4.2015 of the Greek tax authorities, the “time of exercise” of a stock option for listed shares (in the Athens Stock Exchange) is defined as the time upon which the shares are transferred by transferring them to the beneficiaries’ shares in the Dematerialized Securities System (DSS), since at that time any capital gains can be valuated as the closing price reduced by the option grant price (preferential price).
Therefore, upon the transfer of the listed shares, only the number of shares (and not the number of stock options) should be taken into account by the Greek tax authorities for assessing whether, at that time, the seller/holder owns less than 0.5% of the company’s share capital. Therefore, if the shares the seller owns at that time represent less than 0.5% of the listed company’s share capital, the transfer of the listed shares will be exempt from the 15% capital gains tax.
2. Tax Treatment of Stock Options and Free Shares
The Greek law stipulates specific provisions for the taxation of the income deriving from stock options, granted to employees or shareholders either at a preferential price or for shares granted for free. Specifically, Article 42A of Law 4172/2013 provides for the tax treatment of two cases, which are briefly outlined below:
2.1. Preferential Stock Options
A. If shares are acquired by an employee/shareholder (who is a Greek tax resident) from a legal entity through a stock option plan (at a preferential exercise price), and those shares are transferred after 24 months from the grant of the stock options, then upon sale, the resulting income qualifies as capital gains, which are taxed at a rate of 15%.
Important note:
Upon the sale of shares, two different types of capital gains arise:
- Capital gains of article 42A – which is the capital gains deriving from the difference between the grant price of the stock option (i.e. the preferential price) and the actual value of the share at the time of the exercise of the stock option (i.e. the closing price of the share at the stock exchange at the time of exercise). This is called “gains of article 42A” and is taxed at 15% (the exempting provision regarding the % of holding is irrelevant for this tax treatment).
- Potentially extra capital gains of article 42 – which is the capital gains deriving from the difference between the sale price of the share and the actual value of the share at the time of the exercise of the stock option (i.e. the closing price of the share at the stock exchange at the time of exercise). This is called “gains of article 42” and is exempt from capital gains tax if the seller holds less than 0.5% of the company’s share capital.
B. In a different scenario, if the shares are transferred before the completion of 24-month period from the grant of the stock options, the resulting income is considered as employment income and is taxed as a benefit in kind.
In such case, the income is subject to progressive taxation according to the following tax brackets:
€0 – €10.000: 9%
€10.001 – €20.000: 22%
€20.001 – €30.000: 28%
€30.001 – €4.,000: 36%
Above €40.000: 44%
Important note:
Upon the sale of the shares, two different types of income/gains arise:
- Employment income taxed as per above.
- Potentially capital gains of article 42 – which are exempt from capital gains tax if the seller holds less than 0.5% of the company’s share capital.
2.2. Free Share Awards or Conditional Share Plans
If shares are acquired by an employee/ shareholder (Greek tax resident) under a free share award program (such as Restricted Stock Units (RSUs), performance shares/performance units, restricted shares plans, matching shares, employee stock purchase plans, or deferred stock programs) which are subject to the achievement of certain performance targets or depending on specific events, then any subsequent sale of such shares by the recipient is considered capital gains income, taxed at a rate of 15%, regardless of the holding period after acquisition.
Important point:
Similarly to what is noted above, at the time of the sale of the free shares, two types of gains may derive:
1) Capital gains of article 42A – which is the closing price of the share at the time of the free grant of the shares, if the sale price is lower or equal – these are taxed at 15% (regardless of % of holding).
2) Potential extra capital gains of article 42 – if the sale price is greater than the closing price of the share at the time of the free grant of the shares, the excess amount (only) is capital gains of article 42 and is exempt from tax if the seller holds less than 0.5% of the share capital.
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.