Looking for a way to reward enthusiastic employees? If you decide to increase their salary, your staff will retain only a limited net amount after tax. Fortunately, there are tax-friendly alternatives, such as share options or warrants.
What is a share option plan?
A share option gives the holder a right to buy a share at a set price for a certain period. If the share increases in value, the option-holder realises a gain. However, there may be various objections to setting up such a plan for shares in your own company: dilution of the shareholder structure and complexity of the accounting treatment are just two of them.
The law allows a share option plan to be started for shares other than those in your own company. That’s why KBC has developed share options for open ended investment companies (BEVEKS) linked to the surrounding economies. Options for shares in these BEVEKS can also be offered as an additional incentive.
- Better risk diversification
- No dilution of the shareholder structure
How does it work?
Your company buys share options from the bank and passes them to your employees. These options are by definition unlisted, and can be bought and sold during the term of the plan. The purchase price of the share options is deductible from your corporation tax liability. Moreover, your company enjoys a high degree of freedom to give the options to whoever you choose; all the law requires is that there is a link to the recipient’s professional activity. Options must always be accepted in writing within 60 days of receiving them.
The tax payable on the share must be paid on the 60th day after the offer, even if the option is not exercised or sold later. The advantage is that the tax is estimated as a percentage of the value of the underlying share on the launch date. One of the conditions for receiving this advantage is that the option is blocked for one year so that it actually undergoes risk. Moreover, employees are exempt from social security contributions on the share option.
The warrant plan, if you want to time-limit the stock market risk
As well as the option plan, the warrant plan is also an alternative to paying extra salary. The difference is that warrants are listed and can be sold after just a few days, unlike the share options in the option plan. As there is no mandatory lock-up period of one year, the stock market risk is limited. On the other hand, income tax is payable on the full value of the warrants, though employees do retain the exemption to social security contributions.
If your interest in option plans or warrants has been aroused, contact your KBC relationship manager.Together with the EBE adviser, he or she will give you good advice, tailored to your company.
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