Employee Share Issue  

New favourable rules

Favourable employee share issue regime for non-listed companies to apply as of 1 January 2021



The Finnish Parliament has approved new provisions related to the tax treatment of directed share issue to employees. The new employee share issue regime seeks to facilitate attracting, engaging and retaining talent through share ownership especially in start-up and growth companies. The new rules also seek to clarify the ambiguity often related to valuation and determining the fair market value of the share under the current legislation. The new rules will enter into force on 1 January 2021

What is changing?

Under the new rules a qualifying employee share issue will not create a taxable benefit to the participating employees if the share price paid by the employees will be at least equal to the mathematical value calculated for the company’s share. In many cases this means shares can be issued to employees at a price below the otherwise determined fair market value without tax consequences arising to the participating employees. If the employees will later dispose of the shares, the gain received on the sale is taxed as a capital gain. The employee share issue must fulfil several conditions in order to qualify for the new regime.

  • The new rules require that the employee share issue is available to the majority of the company’s personnel. This means that shares cannot be issued only to e.g. key personnel or to the management of the company, but instead the share issue must be available to at least over 50% of the personnel. The number of shares issued can, however, vary between different groups of employees.
  • Shares can only be issued to the company’s own employees. They cannot be issued to group company employees or board members.
  • The mathematical value is the company’s net asset value calculated based on tax values and usually it is close to the equity in the balance sheet. The mathematical value is calculated based on the most recently approved financial statements.
  • The new rules will be applicable to all non-listed companies.
  • The employer issuing the shares must be located in the EEA and carry out business activities. The employer should also be a registered regular employer and registered in the tax prepayment register without recorded tax defaults.
  • Any employee receiving the shares should not own over 10% of the company’s shares or voting rights in the company, alone or together with their family members.
  • The new rules are not applicable to employee stock option programmes and employee stock options are not taken into account when determining the 10% limit of ownership.
Our view

The new rules should make it easier to use shares to reward, engage and retain employees in privately owned companies. The new rules will provide a possibility to transfer shares to employees based on a subscription price that will often be lower than the otherwise determined fair market value. The new rules will also help to remove some of the valuation related uncertainties often linked to employee share issues. It should be noted, however, that the new rules do not allow for rewarding merely key employees or management. The share issue should also be carefully planned to make sure all the conditions for the new rules are met.

Emma Häll
Global Employer Services

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