New Circular Letter On Stock Option Plans

As announced by the Luxembourg Finance Minister in his presentation of the 2018 budget bill, the tax regime of stock option plans has been amended. On 29 November 2017, the head of the Luxembourg tax authorities (Administration des contributions directes) issued Circular Letter L.I.R. - No. 104/2 ("New Circular") replacing, as from 1 January 2018, the former circular letter on the tax treatment of stock option plans.

The Luxembourg tax regime of stock options granted by an employer to its employees distinguishes between (i) individual or virtual options and (ii) freely negotiable options:

• Individual or virtual options are not freely negotiable and cannot be sold by the employee. Hence any benefit in kind is only recognised for tax purposes at the time the option is exercised. The value of the taxable benefit in kind corresponds to the difference between the fair value of the underlying shares at the time of exercise of the option and the exercise price. If