Equity and phantom shares at a Spanish startup

Key rules

• Options tax: Options are taxed as employment income on market value minus the price you paid, when you exercise or receive them.
• Startup treatment: Deferral and the higher exemption need an employer certified as an emerging company and a plan that meets the legal conditions.
• Phantom shares: Phantom shares are taxed as employment income when paid and get no startup tax benefits.
• Vesting: Unvested rights are usually lost when you leave, and leaver clauses can cut the price for vested shares.

The headline percentage overstates the value

A figure like "0.5% of the company" is the best case. What you actually keep depends on Spanish tax, on vesting, on what happens if you leave, and on whether the company ever has an exit. Treat the percentage as the start of the question, not the answer.

Options and phantom shares are different things

Stock options give you the right to buy shares at a fixed price (the strike price). Phantom shares give you no shares at all. They are a cash bonus linked to the company's value, paid under the plan's terms.

This difference drives the tax.

How options are taxed

Shares or options you receive from your employer are taxed as employment income when you exercise or receive them. The taxable amount is the market value minus what you paid.

• Standard rule. There is an exemption of €12,000 a year for shares offered to all employees on the same terms within the company's group. A 30% reduction may apply to income generated over more than two years.
• Certified startups. If your employer is certified as an emerging company, tax on options is deferred until the earliest of 10 years after delivery, a sale of the shares, or your leaving. The exemption rises to €50,000 a year. The plan must also meet the law's conditions.

The startup conditions are strict. Ask your employer for proof of certification and have a tax adviser read the plan before you rely on this treatment. The documents list below shows what to request.

How phantom shares are taxed

Phantom shares are taxed as employment income when paid, at your marginal IRPF rate. Your employer withholds the tax at that time. Because you never own shares, the startup deferral and the higher exemption do not apply. A reduction for irregular income may apply if its conditions are met. The plan's terms decide the details.

Vesting and leaving

Equity usually sits in a separate plan document, not in your employment contract. Vesting is often four years with a one-year cliff, meaning you get nothing if you leave in the first year.

If you leave, unvested rights are usually lost. Vested options follow the plan's leaver terms. "Good leaver" and "bad leaver" clauses can let the company buy your shares back at a lower price. Check how long you have to exercise after leaving. Whether equity counts toward severance depends on the plan and on Spanish labour rules.

Equity awards are also treated as pay in kind for Social Security and normally count toward your contribution base when delivered, unless the plan qualifies for an exemption. Confirm this with an adviser.

Questions to ask before you accept

1. Is the percentage measured on fully diluted shares or issued shares?
2. How much dilution is expected in later funding rounds?
3. What is the strike price, and what is the latest company valuation?
4. What are the vesting schedule, the cliff, and any acceleration?
5. What are the leaver terms and the exercise window after leaving?
6. What exit is realistic, and are there liquidation preferences, debt, or share classes that leave common shares with little?
7. Is there any market for the shares, and how is tax applied at exercise and at sale?
8. Is the company certified as a startup?

Preferences matter more than they look: investors can be paid first and leave common shares with little.

A quick way to judge it

Ask for the grant terms in writing. Then work out a realistic payout after dilution and preferences, subtract tax, and apply the vesting schedule. If the result depends on an exit that may never happen, count it as a bonus and not as part of your salary.

Documents you need

• The equity plan document, usually separate from your employment contract. It sets out vesting (often four years with a one-year cliff), what happens to unvested rights when you leave, and the good leaver and bad leaver terms.

• Your individual grant or award terms from your employer, showing the number of options or phantom shares, the price you pay, and whether the plan counts in severance pay.

• Proof that your employer is certified as an emerging company, if you want the startup tax treatment of options.

Check the plan documents with an adviser, as the way equity is treated depends on their terms.

Frequently asked questions

Do phantom shares get the startup tax benefits that stock options get?

No, phantom shares do not get the startup tax benefits that stock options can get. They are a cash bonus, not real shares, so the tax deferral and the higher yearly exemption do not apply. The bonus is taxed as normal pay when it is paid, and your employer withholds the tax then.

How much of my stock options can be tax-free each year in a startup?

For a certified startup, up to €50,000 a year can be exempt, against €12,000 a year under the standard rule for shares offered to all employees on the same terms. Tax on the options can also be put off until the earliest of 10 years after delivery, a sale of the shares, or you leaving. Your employer must hold the official emerging-company certification, and the plan must meet the legal conditions.

Do equity awards count for Social Security contributions?

Yes, equity awards are treated as pay in kind, so they normally count towards your Social Security contribution base when delivered. Plans that qualify for an exemption are an exception. Ask an adviser to check your plan documents.