Effective 1st January, 2024, the German legislator
has further improved the tax environment for employee share plans
as part of the Future Financing Act
("Zukunftsfinanzierungsgesetz"). The
updated law includes, inter alia, an extended tax deferral period
for employee shares in start-up companies, and an increase of the
tax allowance for a so called "all-employee equity plan"
to € 2.000.
Background
Prior to the introduction of Sec. 19a German Income Tax Act
(Einkommensteuergesetz - EStG) as of 2021, a significant barrier
existed for employee equity plans in particular for start-up
companies in Germany, known as the "dry-income problem",
which arose from the traditional tax treatment of
employee shares. Under these
rules, a taxable benefit in kind was immediately triggered if an
employee acquired shares free of charge or at a reduced price
("discounted shares"). This resulted in several
detrimental consequences like employees being faced with an upfront
tax
