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Stock options are a typical remuneration formula that allows employees, within a period, to acquire shares from their employers or another group company, for free or with a discount. Their purpose is to incentivize and retain employees while rewarding them according to the increase in the company’s value.

It is usual to grant stock options of the parent company shares and not of the Spanish employer. In such cases, there are also tax obligations for the Spanish employer company that should be observed. In practice, it is advisable to properly understand each enterprise’s plan as well as the one singed with each employee to determine the accrual of each tax obligation for the parties involved, especially considering that the final delivery of the shares to the employee usually requires a period of permanence with the employer.

From the accounting point of view:

✔ Transactions that, in exchange for services, in the case of services provided by employees, are settled by the company with their equity instruments, are treated as transactions with payments based on equity instruments (Recording and Measurement Standard 17). The employer recognizes the personnel expenses when these are obtained.

✔ If the obligation to deliver such instruments falls on the parent company, without consideration on the part of the subsidiary, the transaction must be recognized as a shareholder’s contribution for the reasonable value of the equity instruments, referred to the date of concession.

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From the tax point of view of the employer company:

✔ The accounting criteria are assumed in such a way that the subsidiary will recognize a personnel expense by crediting its own equity.

✔ Tax legislation temporarily limits the deduction of these personnel expenses to the fiscal year in which shares are delivered to employees. For such reason, in the fiscal year in which the shares have not been delivered yet, personnel expenses that may be recognized for accounting purposes will not be tax deductible but will be the object of a positive book to a tax adjustment.

✔ In the fiscal year when the equity instruments of the parent company are delivered to the Spanish entity employees, the aforementioned accounting expenses, which had not been previously deducted, will be tax deductible.

From the tax point of view of the employee:

✔ Spanish Personal Income Tax regulations determine that all considerations or benefits, in cash or in kind, which derive, directly or indirectly, from personal work or from the employment or statutory relationship and which are not in the nature of income from economic activities, are considered to be full income from work. It also classifies as fringe benefits the obtaining, for private purposes, of goods or rights gratuitously or for a price below their market value.

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✔ For such reason, the difference between the exercise price of the option for the employees, in their condition as such, and the market value of the shares is considered as a fringe benefit for the employee subject to withholding tax to be practiced by the employer. Spanish regulations consider tax-exempt, under certain requirements, the delivery of the employer’s shares or of another group entity, to operational employees or at a price lower than their market value, up to a maximum of 12,000 euros per year for each employee.

✔ Attention will need to be paid to new measures that are expected to be introduced for emerging companies that foresees an extension of the exemption from 12,000 to 50,000 euro, although limited to companies qualifying as such emerging entities (limited to a determined term as from their constitution and subject to having an innovative nature).


Publicado el 09-2022 por PBS