Background information

The employee share scheme includes shares, share purchase rights (options) or share subscription rights (warrants) that people can receive as remuneration in an employment relationship. Unfortunately, however, the scheme currently has a number of limitations that particularly affect smaller and start-up companies. This applies in particular to the cap on the proportion of salary that can be awarded as share-based remuneration and the requirement for valuation of the award. The bill aims to make the scheme more flexible and reduce the tax uncertainty that is often a limiting factor when implementing the employee share scheme.

What will be changed?

The bill proposes several key changes:

• Abolition of cap on the number of warrants that can be offered as income tax-free employee shares: Under current law, the main rule in section 7 P of the Danish Tax Assessment Act is that companies can remunerate their employees with income tax-free employee shares of a value corresponding to up to 50% of the employee's annual salary. This 50% cap is proposed to be abolished, so that an employee can be granted an unlimited number of employee shares free of income tax, provided, among other things, that the employee at the time of entering into the allocation agreement receives an annual salary of at least the unemployment benefit rate (approx. DKK 253,000 in 2025.
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• Extended size and age requirements: The scheme can now be used by companies with up to 150 employees, a net turnover or balance sheet total of up to DKK 200 million and that have been active for up to 10 years.

This means that the scheme can be used for longer and by more growth companies than before.

What are the current rules?

Under the current rules, the value of employee shares awarded can be up to 10% of the employee's annual salary. The limit can be increased to 20% if the scheme is offered widely to employees, and to 50% for new, smaller companies that are up to 5 years old, with a maximum of 50 employees and a turnover/balance sheet of less than DKK 15 million. 

Our comments

The bill is a much-needed breakthrough, which means that companies can use employee share schemes as a real and actual tool to attract and retain employees. Over the years, the use of these schemes has met with justified criticism due to the significant uncertainty surrounding the taxation of warrants. The bill will greatly reduce this uncertainty.

Under the current rules, the application of section 7 P of the Tax Assessment Act requires a valuation of warrants. This is difficult for several reasons, the main one being the choice of the method used to calculate the value of warrants.

The removal of the 50% threshold will make the scheme much more practical as the need for complex valuations in many cases will disappear. At the same time, the higher age and size limits mean that the scheme will not only be relevant for start-ups, but also for growth companies that are in the process of establishing themselves.

For the sake of good order, it should be noted that the bill has only been sent for consultation and that it may therefore change before it is presented to the Danish Parliament. At Samar Law, we follow the development of the bill closely and will continuously update with relevant developments.