Changes in Employee Participation for Young Companies from 2024

Dear Clients,

In our ongoing effort to keep you informed about current tax developments and innovations, we would like to focus on an important topic today: The planned changes in the area of employee participation for young companies, set to come into effect from 2024.

1. Introduction

Employee participation is a tool that companies use to let their employees share in the company's success. For start-ups and young companies, however, it can be a challenge to provide market-compliant remuneration for their employees. The previous models for employee participation were not always attractive in practice, especially due to the immediate taxation of the monetary advantage.

2. The New Employee Participation Model

From 2024, a new model will be introduced, which shifts the point of taxation. This means that the tax liability only arises upon certain events, known as "Trigger-Events". This model is designed to make it easier for companies to make employee participations more attractive while simultaneously offering financial flexibility to employees.

3. Requirements for Companies

For companies to benefit from the advantages of this model, they must meet certain criteria:

• They must not employ more than 100 employees.
• Their sales revenues must not exceed 40 million euros.
• They must not be fully included in a consolidated financial statement.
• The share transfer must occur within the first 10 years after the company's foundation.

4. Requirements for Employees

There are also specific requirements for employees:

• They must not hold a stake of 10% or more in the company.
• A sale or transfer of shares is only possible with the employer's consent.
• They must declare in writing their intention to take advantage of the employee participation regulation.

5. Taxation

A central element of the new model is the shift in taxation. The tax liability only arises upon certain "Trigger-Events", such as the sale of shares or the termination of the employment relationship.

Basis of Assessment:
The basis for assessing the monetary advantage depends on the respective Trigger-Event. In the case of a sale of shares, the sales proceeds are relevant. In all other cases, the common value at the time of inflow is used.

Tax Benefits:
Under certain conditions, a tax benefit is granted. If the employment relationship has existed for at least three years and at least five years have passed since the first transfer of the employee participation, a so-called "mixed taxation" is applied. Here, only 25% of the monetary advantage is taxed at the progressive income tax rate. The remaining 75% of the monetary advantage is taxed at a special tax rate of 27.5%.

If these conditions are not met, the entire monetary advantage is taxed at the progressive income tax rate.

Tax Collection:
If a Trigger-Event occurs during an existing employment relationship or upon its termination, the income tax is collected as part of the wage tax by the employer. If the Trigger-Event occurs after the termination of the employment relationship, the taxation must be declared in the employee's income tax return. In this case, however, the employer is obliged to inform the tax office and is liable for the payment of the tax.

Social Insurance:
In social insurance, the obligation to contribute also only arises upon the occurrence of a Trigger-Event. The contribution base is the sales proceeds when the shares are sold. In all other cases, the monthly maximum contribution base is used.

6. Outlook

The new regulations are intended to apply to shares transferred after December 31, 2023. As it is still a draft law, changes may still occur. It's crucial for you as an entrepreneur or employee to stay informed to optimally benefit from the advantages of this model.

7. Conclusion

The planned changes in employee participation offer numerous advantages for both companies and employees. As your trusted tax consultant in Mödling, we are at your disposal for all questions concerning this topic. Together, we can find the best solutions for your company and your employees.