Tax on discount at purchase.

As of 1 January 2024, an employee may be able to deduct EUR 2,000 per year from the discount provided all employees who are employed for one year or more are eligible to participate in the plan (increased from EUR 1,440.

Further, as of 1 July 2021, for grants by start-up/small companies, income tax may be deferred until the earlier of (1) transfer of the shares, (2) termination of employment or (3) twelve years from purchase, provided certain requirements are met.

Tax on sale.

May be available if costs are considered to relate to business of local subsidiary, which may require local subsidiary to be involved in planning, granting and administering of ESPP. This would significantly increase labor law risks (plan entitlement, works council consultation, etc.). Some German tax authorities take position that costs are not deductible even if above condition is met.

Income Tax

Yes, in addition to surcharge and church tax.

Social Insurance Contributions

Yes, for both employee and employer, unless contribution ceiling already met.

Employer must withhold the employee's contribution.

The EU Prospectus Regulation is in effect in all European Economic Area countries, which includes all EU member states, Iceland, Liechtenstein and Norway ("EEA"). ESPP purchase rights are considered a public offering of securities for purposes of the EU Prospectus Regulation.

An EU-compliant prospectus will be required for the offer of an ESPP in any EEA member state, unless an exemption or exclusion applies. A "small offering exemption" is available if the offer is made to less than 150 persons in a member state. An "employee share scheme exemption" is available if the offer is made to existing or former employees (or directors), provided the offerees are provided with a short disclosure document that contains certain prescribed information about the offer. An exclusion for offers under a certain value threshold across the EEA may also be available.

Additional requirements and/or translations may apply if relying on certain exemptions/exclusions or if a prospectus must be filed. Please contact Baker McKenzie for more information.

Employee reporting required for (i) acquisition of shares, (ii) sale of shares, (iii) sale/withholding of shares to cover taxes, and (iv) cross-border remittance of funds related to acquisition/sale of shares, all if value of shares/remittance is above certain threshold (currently EUR 12,500). If local subsidiary charged for cost of awards, local subsidiary is responsible for reporting the acquisition of shares above threshold.

Report has to be filed with the German Federal Bank (Bundesbank) within certain period after reportable event.

Possibly. It is strongly recommended to: (1) make the law of the parent company's country the governing law, (2) include a provision for an exclusive venue outside of Germany, (3) minimize the involvement of the local subsidiary and (4) include a written disclaimer acknowledging the discretionary nature of the plan.

Discrimination against part-time employees is generally prohibited.

The EU Council Directive 2000/78/EC prohibits age discrimination. Most countries, including Germany, have adopted local rules implementing this Directive, which may have an impact on design of equity and other incentive plans in the EU, particularly on age or age and service provisions which give different treatment (e.g., accelerated or continued vesting) for those meeting the criteria.

A valid basis is required to collect, process and transfer personal data.

The EU Data Protection Regulation ("GDPR") became effective in all EU/EEA countries on 25 May 2018. It introduces new requirements and increases the powers of data protection authorities, rights of data subjects and potential penalties for non-compliance. Accordingly, companies should review their approach to data privacy compliance in the context of equity plan administration and consider on which basis they may be able to rely to collect, process and transfer data.

Registration and notification requirements with local data privacy authorities may also apply.