In brief
The German Federal Ministry of Finance and the Federal Ministry of Justice have published the Draft Bill of the Financing the Future Act ("Draft Bill"), which is intended to strengthen the performance of the German capital market. According to the Draft Bill, the tax framework for employee equity awards will also be improved. Among other aspects, the current tax allowance of EUR 1,440 will be increased to EUR 5,000. However, the allowance will only be applicable if the equity participation is granted to the employee in addition to the salary owed anyway. Furthermore, the requirements for a temporary tax exemption of the benefit in kind granted in form of equity awards in young companies will be loosened and optional lump-sum taxation of the benefit in kind at a rate of 25% will be introduced for the employers. According to the draft law, the amendments are planned to come into force from 1 January 2024.
Background
Until the introduction of the new provision in Sec. 19a German Income Tax Act (Einkommensteuergesetz (EStG)) two years ago, the transfer of equity participations to employees at no cost or at a reduced price resulted in taxable wages, although the employees did not receive any liquid funds (the so-called dry income). In this case, incurred income tax had to be paid out of other funds. Since the general tax allowance for such benefits in kind was only EUR 360 per calendar year prior to the new legislation, the equity participation of employees was not...
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