Employee participation in Germany

Especially for employees of start-up companies, there is a new regulation (§ 19a German Income Tax Act “EStG”) according to which income from the transfer of asset shares in the employer’s company is initially not taxed. This also applies if the asset participations are held indirectly via partnerships.

The regulation applies to companies that were founded a maximum of twelve years ago and that are considered small or medium-sized enterprises (“SMEs”) within the meaning of the HGB at the time of the transfer or in the preceding calendar year.

Taxation takes place after 12 years at the latest, unless the shareholding is sold before then or in the event of a change of employer. This is to avoid that the transfer of a shareholding leads to taxable remuneration (remuneration in kind) for the employee without liquid funds having accrued to him (so-called “dry” income). This is intended to contribute to employee recruitment and retention.

In order to assess the taxable pecuniary advantage, one is guided by the time of the share transfer to the employee – even if the actual taxation takes place much later. Regarding social security, the provisional exemption s does not apply. Therefore, the transfer of a share in assets continues to be considered as remuneration subject to contributions at the time of the transfer. However, this only has an effect if the contribution assessment limits have not yet been exceeded by other remuneration.

The regulation applies to asset shares that are transferred from 30 June 2021.

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