The long term incentive plan called Stock Option Plan, based on which the employer grants equity in the company to its key employees, in certain conditions, is more favorable from a tax perspective than similar plans implemented in other countries from Central and Eastern Europe, shows a Deloitte Romania analysis.
Besides Romania, the analysis covers eight other countries in the region, namely Hungary, Poland, Czech Republic, Slovakia, Bulgaria, Croatia, Serbia and Latvia.
“Granting company shares is a remuneration method based on which the employer connects the individual performance of top management employees with the business performance, generating increased loyalty and, at the same time, additional motivation. Even though the tax regime for such an instrument is definitely more favorable than usual salary elements, when deciding on whether the company should implement such an instrument, the employer should focus on the company’s growth strategy and the need to co-engage the employees in achieving it,” mentioned Raluca Bontas, Partner Global Employer Services, Deloitte Romania.
The tax incentives are the main benefits for the equity plans (more specifically, of the Stock Option Plan), since the taxation occurs when the employee sells the shares and thus obtains a capital gain, and not when he actually receives them, like in the case of other types of benefits.
“The Stock Option Plan has two important elements: the correlation between the remuneration received and the increase of the employer’s shares value and, subsequently, the employee’s retention for a longer period, either to benefit from a higher value of the shares or to obtain the associated dividends,” states Elena Raileanu, Manager, Global Employer Services, Deloitte Romania.
The main conclusions for the equity plans in the nine countries subject to the analysis:
It is worth mentioning that, in addition to the income tax paid for the benefits associated with the enrollment in the equity plans, employees and employers should also take into account the mandatory social security contributions due in each country, based on the domestic and European legislation on social security matters.
A comparative calculation of the taxation regime applied for benefits received as shares and as cash amounts reflects the advantages generated by the tax incentives in Romania. The estimate computation is prepared based on the assumption that the capital gain obtained from the sale of shares is equal to the cash bonus, so that the outcome is relevant.
Benefits from Stock Option Plan
Type of income
Pension contribution (employee) – 25%
Health fund contribution (employee) - 10%
Income tax - 10%
Net benefit received by the employee
Work insurance contribution (employer) - 2.25%
Total cost employer
*The computation base for health fund contribution is capped at 12 times the national gross minimum revenue, which currently is 2,080 RON.
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