Stock Option Plan Taxation

The Stock Option Plan (SOP) is an instrument aiming to motivate and reward a company’s employees by giving them the right to opt, at a future date, for the purchase of company shares at a preferential price (or even to receive such shares for free).

Along with shares of the entity having initiated the stock option plan, shares in the entity’s affiliates can also be granted under this program.

According to the Tax Code (Law no. 227/2015, Article 7(39)), the Stock Option Plan has the following characteristics:

• it is a program initiated within a legal entity that gives employees, directors and/or officers of that entity or of that entity’s affiliates the right to purchase at a preferential price or to receive for free a determined number of shares issued by the entity in question;
• for a program to qualify as a stock option plan, it must provide for a period of at least 1 year between the time when the right is granted and the time when that right is exercised.

An essential advantage of the SOP is that if it meets the fiscal characteristics referred to above, the shares are treated more favorably from a tax point of view than salary income or other types of assimilated income, meaning that they are not subject to income tax and social contributions at the time the right is granted and at the time it is exercised.

The natural person employee will pay tax (10 %) on the earnings obtained from the sale of the shares acquired under a stock option plan only at the time of such sale.

For these earnings, the natural person may also owe the social health insurance contribution (CASS) if the annual threshold, now at RON 27,600, is exceeded.

The tax and the social health insurance contribution (CASS), where applicable, are declared by the natural person using the Unique Declaration (Declarația Unică - DU).

If the SOP plan does not meet the Tax Code definition, the shares granted to the employees represent salary-like benefits which are taxable as such, by applying the income tax and the social contributions. The tax base will be the market value at the time the shares are actually granted, or the difference between the market value and the preferential price paid by the employees, if they did not receive the shares for free.