Germany approves financial reforms to help its tech industry compete with Silicon Valley


BERLIN, GERMANY – NOVEMBER 15: German Finance Minister Christian Lindner gives a statement to the media at the Chancellery following the weekly government cabinet meeting on November 15, 2023 in Berlin, Germany. The topic was a ruling by the German Constitutional Court declaring that the coalition government’s shift of federal money in 2021 originally earmarked to alleviate the consequences of the coronavirus pandemic and that had gone unused towards climate change mitigation measures was unlawful. (Photo by Sean Gallup/Getty Images)
Sean Gallup | Getty Images News | Getty Images

Germany on Friday approved a package of key reforms to its capital markets frameworks to help its technology industry compete with Silicon Valley.

The reforms, which are expected to come into effect on Jan. 1, 2024, will usher in a litany of changes to Germany’s frameworks for stock-based compensation at startups, listing of companies and taxation.

The reforms, which have been in the works for sometime, had been widely expected.

Some of the major changes will be to employee stock options plans, which allow companies to hand a slice of the business to their employees. 

Under the new German rules on Employee Stock Option Plans (ESOP), taxes on employees’ stock options will be deferred until the point of sale so that staff aren’t faced with the prospect of being taxed on their shares as soon as they receive them, according to a draft version of the legislation viewed by CNBC.

Meanwhile, the scope of the scheme will also be widened so that more growth companies can benefit.

The threshold for companies that can take advantage of German ESOP plans will be raised so that firms with up to 1,000 employees and a maximum of 100 million euros ($108.7 million) of annual revenues can distribute shares to staff. 

Capital gains tax rules will also be changed so that startup employees are charged tax on the profits they make when they sell their shares. This tax is viewed as a reflection of the risk that employees take on a young, unproven startup.

The new legislation will also mean that companies listing in Germany can issue dual-class shares. Dual-class shares are a key point of attraction for venture-backed startups, as it allows founders to maintain control over the business.

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