Coming soon: a new worker shareholding scheme?

The current specific tax regime for stock options allows an employer to offer its workers options on the company’s shares. The exercise price of these options is generally set at a value equal to the market value of the underlying shares at the time of grant.

From a fiscal perspective, subject to their acceptance, the options are considered a benefit in kind, taxable as a professional income for the beneficiary at the time of grant, but the value of this benefit in kind is fixed at a percentage of the underlying share at the time of grant, which may be as low as 9%.

The main disadvantage of this scheme is that the workers are taxed at the time the option is granted, even though it is not certain that they will actually exercise their rights to acquire the shares. Indeed, it is only in the worker’s interest to exercise the option if the share value is higher than the exercise price of the option at the time they can exercise it.

Furthermore, during the entire holding period of the options, the workers have no political rights with respect to the company. They are not shareholders and do not have the right, for example, to attend the general meeting. Therefore, even if the stock option scheme can be fiscally advantageous, it does not allow workers to participate in the company’s governance.

In light of the shortcomings of this regime and in the absence of any other (tax-)efficient mechanism to promote worker share ownership, a new fiscal and social scheme is currently under discussion on the floor of the Federal Parliament to incentivise employers to allow workers to acquire a stake in the company for which they work. This new regime is not intended to replace the existing scheme to date, but to complement it.

The general principles of this new scheme are as follows:

1. An employer may offer its workers shares free of charge or at a reduced price;
2. From a fiscal perspective, at the time of granting such shares, there is no taxation either for the workers or for the employer; indeed, it is only at the time of an exit (their sale) that the selling worker must pay tax.
3. In terms of social law, the granting of such shares is not considered as a remuneration and therefore does not give rise to the payment of social security contributions;
4. Practically:
   • Either the employer grants the own shares it holds to its workers, free of charge or at a reduced price, or the employer grants its workers a tax-free bonus intended to finance the subscription of newly issued shares;
   • For the entire time a worker holds shares, she/he must be regarded as shareholder for tax purposes in the same way as other shareholders; to prevent these shares from being used to offer employees benefits that escape the taxation applicable to remuneration (for example, by granting preferential dividends), the economic rights of these shares may not differ from those granted to the company’s other shareholders.
   • When the worker sells her/his shares, she/he will be taxed on the capital gain realized at a favourable flat rate of 10%, it being specified that this rate applies only insofar as the sale price is equal to the market value of the shares sold, any positive difference between the sale price and the market value of the shares being taxed as remuneration. If the worker has paid part of the acquisition or subscription price, the capital gain is taxable only in proportion to the part of the price she/he has not paid.

In our view, this new scheme would be an excellent way of promoting worker involvement in their company’s value creation and aligning their interests with those of other stakeholders, and hope that the bill will soon be passed by Parliament.