Rules Concerning the Tax Treatment of Equity Compensation to Employees in Startups
Published 25 September 2020
Category: Taxation / VAT
On 21 August 2020, the Danish Ministry of Taxation published for consultation a draft proposal according to which previously adopted amendments to the Danish Tax Assessment Act concerning the tax treatment of equity compensation to employees in “startups” will enter into force on 1 January 2021.
The amendments will expand the application of certain favourable rules on the tax treatment of equity compensation to employees (section 7 P of the Danish Tax Assessment Act) to allow employees in “start-ups” to receive equity compensation of a value corresponding to up to 50% of their annual salary at the time of grant without such compensation being taxed as salary.
Application of the rules will be subject to fulfillment of various conditions, including that (a) at the time of grant, the “start-up” must have had no more than 50 employees in one of the two most recently presented annual financial statements, (b) at the time of grant, the “start-up” must have had a net revenue not exceeding DKK 15 million or a balance sheet total not exceeding DKK 15 million in one of the two most recently presented annual financial statements, and (c) “the start-up” must have been active in a market for less than five years before the calendar year in which the agreement with the employee is concluded.
Next steps: The consultation period ended 18 September 2020 and we expect the draft proposal to be presented in parliament during autumn 2020.
See the draft proposal presented for consultation here (in Danish).