Zufing

Employee Equity Participation
Increase of the tax-free threshold for employee equity participation from 1,440 euros to 5,000 euros per calendar year. Effective date: January 1, 2024.

INTRODUCTION OF ACCOMPANYING PROVISIONS TO ENSURE THE PURPOSEFUL EFFECT OF THE THRESHOLD INCREASE IN § 3 NO. 39 SENTENCE 1 ESTG-E: § 3 No. 39 sentence 2 EStGE: New in the government draft: Conversion of salary up to 2,000 euros per year can be used to utilize the threshold; amounts exceeding 2,000 euros up to 5,000 euros per year must be granted in addition to the regular salary. This is intended to allow limited use of pure salary conversion models and the implementation of matching plans (financing of equity participation by the employer and the employee). In the ministry draft, it was still intended that the entire amount of employee equity participation must be granted in addition to the regular salary. § 17 paragraph 2a sentence 6 - new - EStG-E: In cases where the employee holds 1 percent or more of the company, the tax-free fringe benefits under § 3 No. 39 EStG-E do not count towards the acquisition costs when calculating the capital gains if the equity participation is sold or transferred free of charge within three years. § 20 paragraph 4b - new - EStG-E: Tax-free fringe benefits according to § 3 No. 39 EStG-E do not count towards the acquisition costs when calculating the capital gains on capital income if the equity participation is sold or transferred free of charge within three years. This leads to the collection of withholding tax on the previously tax-free portion of employee equity participation. Effective date: January 1, 2024.

EXPANSION OF THE REGULATIONS FOR DEFERRED TAXATION OF MONETARY BENEFITS FROM EMPLOYEE PARTICIPATION IN § 19A ESTG (AMONG OTHERS, TO MITIGATE THE DRYINCOME ISSUE): Expansion of the group of companies covered by the regulation: § 19a paragraph 1 sentence 1 EStG-E: Clarification that the provisions of § 19a EStG also apply to equity participation granted by the (founder) shareholders of the employer. § 19a paragraph 1 sentence 3 - new - EStG-E: Addition of a group clause, in accordance with § 3 No. 39 sentence 3 EStG: Companies under the employer also include companies under § 18 AktG. § 19a paragraph 3 EStG-E: Expansion of the scope of deferred taxation by (1) doubling the thresholds for annual turnover and annual balance sheet total W Income Tax for the application of § 19a EStG (double SME threshold): annual turnover of a maximum of 100 million euros or annual balance sheet total of a maximum of 86 million euros, (2) quadrupling the threshold regarding the number of employees for the application of § 19a EStG (in the ministry draft: doubling) (fourfold SME threshold): employing fewer than 1,000 employees, (3) extending the period in which these thresholds must have been met at least once to the time of the transfer of the participation or one of the six preceding calendar years (previously: at the time of the transfer or the preceding calendar year), (4) allowing a maximum of 20 years since the company's establishment (previously: 12 years), (5) clarification that the thresholds should be determined solely for the employer's company (new in the government draft). (6) clarification that the thresholds must be determined in accordance with Articles 4 and 5 of the Annex to the Commission Recommendation of May 6, 2003, concerning the definition of micro, small and medium-sized enterprises (OJ L 124, May 20, 2003, p. 36), in its current version (new in the government draft). For example, the cutoff date of the last financial statement must be used. The status of a company to be considered is also only lost or gained if there is an over- or undershooting in two consecutive fiscal years. Reform of "Dry-Income" taxation: § 19 paragraph 4 EStG-E: (1) In the future, taxes on equity participation should not be due until at the latest after 20 years (previously: at the latest after 12 years). The deferral of the taxation point should also apply to equity participation transferred or transferred before 2024. (2) In the event of repurchase of shares by the employer, a shareholder of the employer (new in the government draft), or a company under § 18 AktG (e.g., in the context of a so-called "leaver event" when the employee leaves the company), the actual compensation paid by the employer, not the market value, is relevant for taxation. According to the legislative explanation, this also applies to equity participation transferred or transferred before 2024. § 19 paragraph 4a - new - EStG-E (in the ministry draft: § 19 paragraph 4b - new - EStG-E): No taxation before the transfer of the received equity participation if the employer voluntarily and irrevocably declares that it is liable for the tax in the event of a transfer. The assumption of liability does not lead to taxation upon termination of the employment relationship or at the end of the 20-year period. The employer cannot escape liability through a report under § 38 paragraph 4 sentence 2 in conjunction with § 42d paragraph 2 EStG. No discretionary decision by the branch tax office is required to enforce liability. Note: The option, as initially proposed in the ministry draft, of a flat tax of 25 percent on company shares allocated to employees instead of applying the personal income tax rate is no longer included in the government draft. Effective date: January 1, 2024. Further Changes: § 3 No. 71 ESTG-E (NEW IN THE GOVERNMENT DRAFT): EDITORIAL ADJUSTMENTS TO THE TAX EXEMPTION FOR THE INVESTMENT GRANT BASED ON CHANGED INVESTMENT SUPPORT CONDITIONS (SEE SUPPORT GUIDELINES FOR THE SUBSIDIZATION OF VENTURE CAPITAL INVESTMENTS BY PRIVATE INVESTORS FOR YOUNG INNOVATIVE COMPANIES OF FEBRUARY 6, 2023, BANZ AT MARCH 15, 2023 B1): Expansion of eligible companies to include registered cooperatives, Increase of the acquisition grant to 25 percent, Limitation on the exit grant to 25 percent of the investment amount. Effective date: On the day after the law is announced. To be applied for the first time in the 2023 assessment period. § 43 paragraph 1 sentence 1 ESTG-E: NECESSARY AMENDMENT DUE TO THE INTRODUCTION OF ELECTRONIC SECURITIES: Explicit reference to electronic securities and ensuring that there are no changes in the existing processes for capital gains tax deduction. Effective date: On the day after the law is announced. § 43A paragraph 2 ESTG-E: Consequential amendment for the insertion of § 20 paragraph 4b - new - EStG-E in the capital gains tax procedure: In the future, paying entities must take into account that, in the case of a transfer or free transfer of an equity participation within three years, the tax-free fringe benefit also affects the acquisition costs. Effective date: January 1, 2024. To ensure correct taxation upon sale within the deadline set by § 3 No. 39 EStG in conjunction with § 20 paragraph 4b - new - EStG-E (3-year deadline), in the event of a transfer to another account of the same taxpayer, the domestic paying entity shall notify the receiving domestic paying entity separately of the amount of the additional payment and the tax-free fringe benefits as components of the acquisition data. Effective date: January 1, 2024. § 44 paragraph 1 sentence 4 ESTG-E: Consequential amendment for the introduction of electronic stocks: The provision that the payer of capital gains is the paying entity applies accordingly when the securities collection bank does not regulate dividends, if the shares were not entrusted to a securities collection bank but to a registry authority in accordance with § 12 paragraph 2 or § 16 paragraph 2 of the Law on Electronic Securities, and the register keeper does not regulate dividends. Cryptocurrency Securities: In cases where custody or management is carried out by a custodian institution for the end customer or owner of the cryptocurrency security (defined as the eligible party in § 3 paragraph 2 eWpG), the existing tax withholding rules should also apply to these securities. In cases of selfmanagement, the registry authority of a cryptocurrency security shall be obliged to withhold tax if there is no withholding agent due to the elimination of intermediaries. This now also applies to electronic stocks. Effective date: On the day after the law is announced.