Taxation of share awards varies from country to country and knowing how tax works is essential to ensure you are making the right decisions with your Restricted Stock Units (RSUs), stock awards or employee stock options (ESOs). We will focus on one country at a time and highlight for you the key high level tax considerations you should know for that country. Clearly every individual’s tax situation is different so what we share below is high level guidance for typical scenarios but do your own research or seek specific advice on your situation before taking any action.
The focus today is Denmark.
Do employee stock awards have income tax applied at grant date or vesting date?
In Denmark income tax is typically payable at the vesting date for Restricted stock units and restricted stock and on the exercise date for stock options. Income tax is calculated based on the market value (market value less cost for options).
However if the value of the award is less than 10% of the employees annual compensation it is possible for the employer/employee to get favorable treatment and have the taxable moment deferred until such time as the award is sold. At that time it will be subject to capital gains tax.
Are stock awards subject to capital gains tax (CGT)?
Yes, capital gains tax applies upon the sale of the stock. Once vested/exercised the stock is an asset you own and is typically subject to CGT based on the gain made between vesting date and sell date. .
Is income tax withheld by the employer or the responsibility of the employee?
The employer is responsible for reporting the taxable income earned through employee stock awards to the tax authorities but does not withhold tax. It is therefore the responsibility of the employee to ensure correct tax is calculated and paid at the appropriate time.
Anything else worth noting about Denmark?
Denmark has a relatively high rate of tax so taking advantage of any favorable treatment that is available can be very beneficial. However the requirements for an employee share plan to qualify for favorable treatment in Denmark are quite specific meaning it is hard for multinationals with standard global plans to comply. That being the case most foreign multinationals will have plans where the high rate of tax in Denmark is applied upon vesting for RSUs and exercise for options.
We hope this was useful, please do visit the website and use our free valuation tool if you are thinking about tax and need to understand the current value of your employee stock awards / long term incentives.