Offering shares or options to employees

Terms used

• IRPF — The IRPF is Spain's personal income tax, paid by residents on their worldwide income.
• Rendimientos del trabajo — Rendimientos del trabajo is employment income, including salary and benefits such as shares or options received through work.
• Participaciones sociales — Participaciones sociales are the shares of an SL, which cannot be offered to the public or traded as securities.
• Acciones — Acciones are the shares of an SA, freely transferable unless the company's articles restrict them.
• ENISA — ENISA is the public body whose certification a company needs to qualify as an empresa emergente (certified startup).

Key rules

• Standard exemption: Shares under a qualifying all-employee plan are exempt up to 12,000 euros per year, if held 3 years.
• Startup exemption: Certified startups can raise the exemption to 50,000 euros per year.
• SL limits: An SL cannot offer its participaciones to the public or issue them as securities.
• Withholding: As the employer, you must withhold tax on equity income.

The short answer

Employee equity in Spain is taxed as employment income. A standard plan has a limited exemption. Certified startups get a much bigger exemption and can defer the tax. Your company type (SL or SA) decides which structures you can use.

How the employee is taxed

For employees who are Spanish tax residents, shares or options count as rendimientos del trabajo, meaning employment income under IRPF. Tax normally falls when the employee exercises the option or receives the shares. The taxable amount is the market value minus the price the employee paid.

Three points to plan for:

• Standard exemption. Shares delivered under a qualifying plan are exempt up to 12,000 euros per year. The offer must be open to all employees, and the employee must hold the shares for 3 years.
• 30% reduction. Income generated over more than two years that is not regular may get a 30% reduction.
• Withholding. You must withhold tax as the employer, and social contributions may apply.

Extra benefits for certified startups

If your company is a certified startup (empresa emergente), the rules are better for employees:

• The exemption rises from 12,000 to 50,000 euros per year for shares and options.
• Tax is deferred until the earliest of three events: 5 years after delivery, the sale of the shares, or the employee leaving.
• The plan does not have to be offered to all employees.
• The employee's stake cannot exceed 10%, or 20% in some cases.

The company needs ENISA certification first. Apply for it before you design the plan, because the tax benefits depend on it.

How to structure it: SL or SA

SL (sociedad limitada). Its shares are called participaciones sociales. They cannot be offered to the public or issued as negotiable securities. You grant equity through a capital increase approved by the general meeting, and employees subscribe or buy participaciones. Most companies add a shareholders' agreement with vesting and good/bad leaver clauses. Transfers are restricted by law and by the articles, which usually require consent.

SA (sociedad anónima). It issues acciones, which are freely transferable unless the articles restrict them. An SA can run stock option plans, including through convertible bonds. A listed SA must also follow securities rules.

Phantom shares. These are cash-settled plans that pay a bonus linked to the company's value. They work in both company types and avoid dilution. The employee gets cash, not ownership.

Next steps

1. Decide whether you want real equity or a cash-based plan.
2. If you are a startup, apply for certification.
3. Draft the plan, the vesting and leaver terms, and the shareholder approvals.
4. Have a Spanish tax adviser check the plan against current thresholds before you offer it.

The questions below cover phantom shares, options in an SL, the all-employee condition and the timing of tax.

Frequently asked questions

Can I pay employees in phantom shares instead of real equity?

Yes, phantom shares work in both an SL and an SA, because they pay a cash bonus linked to the company's value instead of giving real shares. Employees get no ownership, so your existing owners are not diluted. The bonus is paid in cash, so it is not a share delivery.

Can an SL offer stock options to the public or issue them as securities?

No, an SL cannot offer its shares to the public or issue them as negotiable securities. Employees instead subscribe to or buy participaciones (SL shares) after a capital increase approved by the general meeting.

Do I need to offer the plan to all employees to get the tax exemption?

Yes for an ordinary company, because the 12,000 euros per year exemption requires the offer to be open to all employees, plus a 3-year holding period. In a certified startup, the plan does not have to be offered to everyone.

When does an employee in a certified startup pay tax on options?

Tax is deferred until the earliest of 5 years after delivery, the sale of the shares, or the employee leaving the company. This applies only if the company has ENISA certification.