German ESOP Expansion

Germany recently passed legislation to encourage more ESOPs in the country

In Brief: Germany’s legislative body recently passed new laws lightening the tax burden on companies structured as ESOPs. 

The Details: On Friday, November 17th Germany approved reforms to its employee ownership legislation in the hopes of encouraging tech startups and other entrepreneurial firms. Before the reforms, experts such as Martin Mignot described the laws as “disadvantageous for employees and really unfair for everyone.” Specifically, the ESOP laws were “just some cumbersome administratively,” and with “very little tax advantage,” according to Mignot. Under the changes, employees will no longer be forced to pay taxes on the stock as soon as they receive it, with the bill instead being deferred to the point of sale of the stock. The legislation will also allow larger companies to participate in German ESOP plans, increasing the maximum number of employees to 1,000 and the maximum amount of revenue that can be distributed to employees up to 100 million euros. 

Why It Matters: This legislation will make ESOPs a more viable structure for German companies. Currently, the rules are stringent and cumbersome, resulting in a structure with limited advantages. German officials hope that the new legislation will encourage more startups – particularly those involved in the tech industry – to be created in the country. Advocates of employee ownership say that there is still more to be done in order to encourage ESOPs in the country, including expanding the number of firms who are eligible and creating legislation that can be used across the European Union. 

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