Spain: Stock Options

In our previous publication, we detailed what in-kind remuneration is. In the following article, we will discuss some of the most common types of in-kind remuneration:

 

Stock Options

Stock options are a form of compensation that certain companies provide to their employees. This modality allows employees to acquire company shares at a predetermined price (known as the strike price) within a specific period. Below, we detail their comprehensive functioning and how they are incorporated into the payroll:

1. Rating of stock options

• Allocation: The company grants a certain number of options to certain employees. This is established in a stock option contract or plan.
• Exercise price: The price at which the employee can buy the shares in the future is set.
• Vesting period: The options cannot be exercised immediately. They must go through a vesting period, which can be gradual or complete after a certain time.

 

2. Vesting

• Conditions: For the options to vest, the employee must meet certain conditions, such as staying with the company for a specified period.
• Rights: Once the options have gone through the vesting period, the employee has the right, but not the obligation, to buy the shares.

 

3. Exercising the options

• Purchase decision: The employee decides when to exercise the options, buying the shares at the exercise price.
• Market price: It is relevant to compare the exercise price with the current market price. If the market price is higher than the exercise price, the employee can make a profit.

 

4. Tax and payroll treatment:

• Exercise moment: The mere granting of stock options does not result in any tax imputation. The moment these stock options impact payroll is when the employee gains a benefit from these options (selling the shares because the market price is higher than the exercise price). When this benefit occurs, it is considered as in-kind remuneration.
• Social Security contributions: The benefit obtained by the employee will be subject to Social Security contributions for both the company and the employee, with the maximum legal bases for contributions established.
• Income Tax (IRPF): The benefit obtained from exercising the options is taxed as employment income.

 

Tax benefits and exemptions

 

Under certain circumstances, stock options may benefit from a partial exemption in Income Tax (IRPF). For this exemption to apply, certain requirements must be met, such as:

 

–              The options must be part of a compensation plan approved by the company.

 

–              The options must be granted to all employees of the company.

 

–              The exercise price must be equal to or greater than the market value of the shares at the time of the grant.

 

–              The options must be held for a minimum of three years before their exercise.

If these conditions are met, the exemption can be applied to the employment income generated at the time of exercising the options, with a maximum limit of 12,000 euros per year.