Competition for labor forces employers to look for different methods of attracting, retaining and rewarding high performing staff. For these reasons, employee compensation in the form of equity instruments, in addition to the usual salary and benefits package, has become widespread. According to the PwC Paywell salary study in Romania, 10% of responding companies already use this solution, which can be achieved if employees join plans such as stock option plan (SOP), restricted stock plan (RSU), employee stock ownership plan (ESOP) and others similar.

Employee compensation plans in capital instruments incentivized by tax incentives

Equity compensation plans give employees the right to receive shares in the future for free or to buy at a discounted price shares of the company they work for or other companies in the group. However, the exercise of the right depends on certain criteria, such as the continuity of the relationship with the employer or individual and global results.

Appetite for this form of reward has also been stimulated by certain tax benefits that apply to employees. More specifically, if employee compensation plans in capital instruments qualify as a “Stock Option Plan” based on the definition in the Fiscal Code, employees may benefit from exemptions from income tax and social security contributions on salary income. Among the conditions provided by the Tax Code for the application of a preferential tax regime from the point of view of income tax and social contributions, we mention the existence of a minimum period of one year between the moment of granting the right to purchase or receive a certain number of participation titles and the moment of its implementation.

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The article is signed by Camelia Nice, Director, Ala Popa, Senior Manager and Florin Rizea, Senior Manager

Article supported by PwC Romania