The Federal Government has introduced the draft of a Future Financing Act (Zukunftsfinanzierungsgesetz). Its aim is to improve the tax framework for employee equity participation in companies. Under current law, § 3 Nr. 39 EStG already provides a tax-free allowance of €1,440 per year for the discounted or free granting of certain asset participations.
Increase of the Allowance
The allowance mentioned above is to be raised to €5,000 per year. However, if the participation exceeds €2,000 per year, it must be granted in addition to the wages already owed. Tax-free benefits from the granting of asset participations in the company are not to be counted as acquisition costs if they are sold within three years of being granted. A gain from such a sale could therefore be higher, since fewer acquisition costs can be offset for tax purposes. If the asset participation exceeds the allowance, the issue may arise that it must be treated immediately as subject to tax and social security contributions in the payroll, since a benefit in kind has been granted. Taxes and contributions must therefore be paid even though no cash has been received.
Expansion of the Tax Relief
Under current rules, immediate taxation can already be deferred under certain circumstances until the sale, termination of employment, or generally for up to twelve years. To qualify, the company must meet certain defined size thresholds as a small or medium-sized enterprise and must not be older than twelve years. It is now planned to ease the requirements for deferral: the thresholds are to be raised significantly, so that more companies will generally be eligible. In addition, the tax relief is to be extended in time, with the maximum age of the company being raised to 20 years. Finally, asset participations granted directly by the shareholder of the employer are also to be covered in future, as are discounted transfers within a group of companies.
Note
As before, the rules are to apply to participations under the Fifth Capital Formation Act (Fünftes Vermögensbildungsgesetz), in particular to shares in the employer, convertible bonds, profit participation rights, GmbH shares, or participations as a silent partner.