Employee Share Purchase Plan

Securities law regulations

Under the EUPD, as implemented in Germany, the issuer can offer shares under an ESPP to employees without having to publish a prospectus, provided a document is made available to the employees containing certain information in respect of the offer. Plan documents should contain appropriate wording to ensure compliance.

Foreign exchange regulations

None. Transfers of funds in or out of Germany above EUR 12,500 have to be reported to the German Central Bank for statistical purposes. The financial institution making the transfer typically carries out the reporting.

Labour law

Acquired rights and termination claims

Repeated participation in the plan without an effective reservation of voluntary status generally establishes a company practice and participants acquire the right that the plan is also offered in the future. Plan documents should contain appropriate wording to reduce the risk that participants are entitled to participate in the plan in the future (acquired rights) or to compensation for lost benefits in the event of termination (severance payments).

Work council requirements

There may be an obligation to consult the work council prior to implementation of the plan, also depending on whether the awards are granted by a German or a foreign company.

Discrimination laws and equal treatment rights

Anti-discrimination rules need to be considered and adhered to, especially in respect of age or age and service provisions which provide for different treatment under the ESPP. It is legally admissible to apply different treatment of employees and to exclude groups of employees from participation as long as this is based on objective grounds.

Payroll deductions

Payroll deductions are permitted provided the employee consents in writing.

Electronic agreements

Electronic agreements are generally binding.

Translation requirements

There is no legal requirement to translate the plan documents.

Data privacy law

Generally, employee consent written is required in order to collect, process and transfer the personal data of the employee. Consent will only be valid if given freely and in writing. The plan documentation should be drafted to ensure the data privacy laws are adhered to.
Registration and notification requirements with local data privacy authorities may apply.

Employee and Employer Taxation

Taxable event

Purchase of the shares at discount.

Taxable amount

Market value of the shares at purchase less the purchase price

Taxes due

The benefit is employment income and subject to income tax, social security, solidarity surcharge and church tax (where applicable).

Tax and social security rates for ordinary residents the tax year ending 31 December 2019

  • Income tax of up to 45%
  • Employer social security of up to 19.375% (capped)
  • Employee social security of up to 19.375% (capped)
  • Solidarity surcharge of 5.5% on the taxable income
  • Church tax of up to 9% (where applicable)
Dividends paid during the holding / restriction period:

Dividends of a German company: Dividend payments are investment income, subject to capital gains tax at a flat rate of 25%, solidarity tax and church tax (if applicable) of up to 9%. An annual exemption of EUR 801 per individual is available.

Dividends of a foreign company:

The dividends are subject to income tax and need to be declared and paid by the employee via the annual tax return.

Dividend equivalents:

Dividend equivalents are treated as employment income.

Sale of shares:

If the shares are held in an account with a German financial organization, the financial organization withholds the capital gains tax at a flat rate of 25%, solidarity tax and church tax (if applicable) of up to 9% and remits it to the tax authorities.

An annual exemption of EUR 801 per individual is available.

If the shares are held in an account outside of Germany, there is no obligation to withhold the capital gains tax. In such case, the individual has to declare the gains from the sale of shares in the annual tax return.

Different rules apply to shares acquired prior to January 2009.

Tax preferential treatment

  • Annual exemption of EUR 360 may be available if certain conditions are met
  • Beneficial income tax calculation may be available.

Withholding and Reporting

The employer has an obligation to withhold and report the income tax, solidarity tax, any church tax and social security contributions (if the contribution ceilings have not yet been met).

Corporate Tax Deduction

German employing entity grants and settles awards: In case of settlement via newly issued shares generally no corporate tax deduction is available. In case of settlement by way of treasury shares / re-purchased shares a deduction may be available, depending on the specific circumstances.

Foreign entity grants and settles awards: In case of a grant to employees of a German subsidiary by a foreign issuer a corporate tax deduction may be available on the basis of a recharge agreement, provided the recharge contains appropriate wording and is entered into prior to grant.

A recharge agreement does not generally impact the employee tax position or the employer tax position.