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Allocation of employee shares and duty to report

Many companies offer their employees the opportunity to invest in employee shares as a means to motivate and retain loyalty and commitment. However, some special tax rules apply, which I will address in this post.

Old rules: The Danish Tax Assessment Act, section 28

Typically, the employee is allocated a stock option wherein it is promised that the employee will receive shares if certain conditions are met; typically, these are the employee being employed at a specific point in time or when profits reach a certain amount.

This will typically happen in accordance with section 28 of the Danish Tax Assessment Act, and when/if the employee is employed at a specific date, the employee is allocated a share. Here, the time of taxation is the allocation date (as personal income at up to approx. 52%).

In practice, this is typically the scheme that is still used. However, it is possible to apply section 7P of the Danish Tax Assessment Act cf. below.

Reporting in eIndkomst (eIncome)

Employee share schemes under section 28 of the Danish Tax Assessment Act must be reported to the Danish Customs and Tax Administration (SKAT) through eIndkomst at the time of allocation. Field 068, respectively 50 and 51.

New rules: The Danish Tax Assessment Act, section 7P

Since 1 July 2016, it has been possible to follow the new rules in section 7P of the Danish Tax Assessment Act. According to the rules herein, taxation is deferred to the time when the share is sold. In that context, the employer and employee enter into an agreement that the allocation of shares is subject to section 7P, and this must be explicitly stated in the agreement.

Conditions to be covered by section 7P

  • The value of the shares cannot exceed 10% of the employee's annual salary.
  • The shares must be allocated by the employer company, or by a company consolidated with the employer company. This scheme cannot be used by board members.
  • The shares cannot be transferred to third parties.
  • Producing a certificate from the auditor/lawyer is no longer a requirement, but rather extended reporting requirements apply to the company.
  • The company cannot deduct the related costs (the company can deduct them if the old rules in section 28 are used).

If the conditions are not met, the rules in section 28 of the Danish Tax Assessment Act apply.

In my experience, many of the larger foreign companies' share schemes meet the above condition; only it has not been written into the agreement that the Danish Tax Assessment Act’s section 7P rules are applied.

Reporting in eIndkomst (eIncome) AND eKapital (eCapital)

For employee share schemes covered by section 7P of the Danish Tax Assessment Act, reporting must be done in eIndkomst in field 068 and field 0101. Furthermore, the scheme must also be reported in eKapital.

eKapital is a reporting system which, among other things, applies to dividends on shares as shareholdings, etc., in deposit, as well as the acquisition and cession of shares.

The reporting must be completed no later than 20 January of the year following the year in which the allocation of employee shares took place.

If the company fails to comply with the reporting deadlines, it risks daily fines.

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