Luxembourg's Share Option Scheme: A More Restrictive Approach?

The European Central Bank (ECB) has published a study on the future EU Inc. scheme, comparing various share option schemes across Europe. Luxembourg's proposal for tax relief on share options aims to simplify taxation by deferring it until the shares are sold.

According to the ECB, Estonia, Latvia, and Lithuania each score 30 out of 30 in their ranking system, which assesses factors such as the timing of taxation and the tax burden on employees. In these countries, employees can defer tax until the shares are sold, provided they meet certain conditions.

The Luxembourg proposal does not set a minimum period between the grant and exercise of options, unlike Estonia and Lithuania, which require three years. Latvia requires 12 months before favourable treatment is granted.

France scores 26 out of 30, and Germany scores 25 in the ECB's ranking system. Their schemes differ from Luxembourg's proposal, with France allowing companies less than 15 years old to participate, and Germany having no such limit. Belgium and the Netherlands score lower, at 14 out of 30, but their restrictions on share options are more stringent.

The EU Inc. proposal aims to establish common rules for various financing instruments and corporate procedures across Member States. The Luxembourg proposal addresses tax rates on options, deferring taxation until sale and applying a preferential rate only to schemes meeting its eligibility criteria.