Tax alert - Taxation of Stock Options in Portugal

The Portuguese Government has recently proposed a new regime for the taxation of stock options in Portugal. The attribution of stock options is a means of remuneration typically chosen by start-ups that wish to attract or retain talent in the current context of the labour market globalisation.

Stock options – what are they?

Stock options are a form of remunerating workers/managers through option contracts to buy shares in the company itself. In short, the employee or manager is given the option (but not the duty) to buy shares in the company for which he or she works at a certain value, functioning as a tool to retain current employees or attract new talent.

Taxation of stock options in Portugal - new competitive regime

The Portuguese Government recently presented the Proposal for Law no. 56/XV/1 (the "Proposal"), aiming to create a new regime for the taxation of stock options in Portugal.

Under the terms of the Proposal, gains realised by employees will be taxed at only 50% of their value and will be subject to a special tax rate of 28% for IRS purposes (thus reaching an effective rate of 14%). This is provided that the rights underlying the securities generating the gains or the equivalent rights are maintained for a minimum period of 1 year.

In addition, the taxation of gains obtained by employees at the moment of exercise of the option (i.e., the moment in which the beneficiary decides to exercise his right to buy the stock option) ceases, introducing a deferral to the first of the following moments:

  • Disposal of the securities: the gains will be calculated by the positive difference between the sale value and the exercise price of the option or right, plus whatever has been paid for the acquisition of that option or right; or
  • Loss of the status of resident in Portuguese territory: the gains shall be calculated by the difference between the market value and the exercise price of the option or right, plus whatever was paid for the acquisition of said option or right.

However, members of the corporate bodies and taxpayers who directly or indirectly own a holding of not less than 10% of the share capital or voting rights of the entity granting the plan are excluded from access to this tax regime (unless, in the year prior to the granting of the plan, the entity was qualified as a small or medium-sized company).

This new benefit may apply to a significant number of entities, such as (i) start-ups (whose concept is densified in the Proposal), (ii) micro, small or medium-sized companies, (iii) small-medium capitalisation companies or (iv) any entity that develops its activity in the scope of innovation, considering as such the entities that have incurred expenses with R&D, patents, industrial designs or software equivalent to at least 10% of its expenses or turnover.

It should be noted that the Proposal is under discussion in the Portuguese Parliament and, as such, may still undergo amendments and improvements to fill some gaps.

If approved, as is expected, the regime will come into effect on 1 January 2023, bringing Portugal in line with the most competitive regimes existing in the European Union.

Tax obligations in Portugal

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