New Dawn for Stock Options in Portugal
Law 21/2023 sets a new legal framework applicable to Portuguse based startups and scaleups and brings also a new tax regime for gains from stock option plans.
Portugal may not be a perfect country but across Europe is has been able to build grounds as one of the top destinations, due to its quality of life, safety, climate, culture, talent and business-friendly environment. Indeed, fostering a favourable business environment is also about providing new tools to the existing “tool-box” that are ultimatly designed to encourage the booming tech-based, blockchain and web3 startup ecosystem. These new rules for employee stock-option plans (ESOPs) aim at creating an attractive tax regime by aligning the tax event of stock options with the a liquidity event (actual disposal) and providing a partial exemption leading to a 14% effective tax rate.
The Five Kore Takeways of the tax regime are the follwing:
Deferral from taxation to the moment of actual disposal of securities acquired through the exercise of options.
Taxable gain on the positive balance between the sales proceeds and the price of exercise of the ESOP, increased by any amount paid for the acquisition of the ESOP.
Minimum 1-year holding period.
Gains derived from the ESOP shall be taxable only on 50% of the respective amount, leading to an effective tax rate of 14%.
Losing the status as Portuguese tax resident of the ESOP holder within the deferral period (between granting and actual sale) gives rise to exit tax, over the market value of the ESOP at the time of the exit from Portugal.
The new incentive applies to ESOPs granted by entity that qualify as start-up, micro, small or medium sized company, or as Small Mid Cap (all with reference to prior year to the ESOP approval). This new incentive also applies to entities carrying innovative activities, which includes entities incurring investment expenses with R&D, patents, drawings, industrial models, or computer programs, when those activities correspond at least to 10% of the total expenses incurred or their turnover (again with reference to prior year to the ESOP approval).
Finally, individual founders of startups or micro or small companies (with reference to the year prior to the ESOP) may benefit from the regime. Only board members or founders of medium sized company or Small Mid Caps, holding directly or indirectly a shareholding of 20% of the share capital or voting rights of the entity granting the ESOP, are excluded from the benefit.
The law provides that this new tax regime is effective as from 1 January 2023, including ESOPs approved before 31 December 2022 by entities either recognised as startups within 12 months follwing the entry into force of the Law or that demonstrate they qualify as startups with reference to the date of approval of the ESOP.
Click here for our Kore Summary.
© Kore Partners, 2023. This briefing provides for general information and is not intended to be an exhaustive statement of the law. Although we have taken care to provide accurate information, this should not replace legal advice tailored to your specific circumstances. This briefing is intended for the use of clients and selected recipients. Queries or comments regarding this, including joining our mailing list, can be directed to kore@korepartners.com