Stock Options in Germany

Disclaimer: This is not legal advice. It might be inaccurate. Always ask a lawyer.

I was talking to a corporate lawyer recently and asked him why they say stock options are complicated in Germany?

For those of you who don’t know, a stock option is about giving early start-up employees the “option” to buy company stocks at a cheaper price with the hope if there is a liquidity event, they can sell those stocks for higher and make money. There are some nuances to this, but it is not the scope of this post. You got the basic idea.

His response as to why they are complicated was that it is because they are taxable at the point of vesting regardless of exercise, and they are taxed as income tax as they are tied to employment. This means the employee is taxable for options they didn’t exercise, at the rate of a salary they didn’t get. There are other problems such as they can’t be non voting, which would make companies think a lot before giving them.

There are different complex solutions to mitigate this, but it seems hard to avoid. No wonder there are trials to change the law on this on an EU level.

All this made me question whether options is the right thing. Even if the laws are fixed I wonder if they will be culturally accepted in the European market, and how long it will take before they become mainstream.