January 2016 - Luxembourg Employment News

Notification of stock option plans

A growing number of companies use stock option plans in order to retain their employees, the latter benefiting from an attractive taxation on stock options.

In this context and in order to clarify the tax regime of stock option plans, the Luxembourg tax authority had issued circular No 104/2 of 11 January 2002 on the tax regime of stock option plans, which was replaced by circular No 104/2 of 20 December 2012 (the “Original Circular”).

Circular No 104/2 bis of 28 December 2015 on the tax regime of stock option plans (the “Circular”) supplements the Original Circular by forcing employers who are planning to grant a stock option plan to their employees to notify the relevant tax authorities. A copy of the plan and the list of the benefiting employees have to be attached to the notification.

The Circular specifies that the notification shall be served at least two months before implementing such plan. 

The Circular came into force on 1 January 2016.

However, employers who have set up a stock option plan before 1 January 2016 and whose options were not yet granted have to communicate solely a copy of the plan as soon as possible to the relevant tax authorities. Those concerned are employers who did set up a stock option plan but have not yet granted such options to their employees (in accordance with the usual four phases: (i) grant of the option; (ii) vesting: point at which the employee owning the option acquires the definitive and irrevocable right to exercise it; (iii) exercise of the option: point at which the employee effectively acquires the (underlying) stocks at the determined price and; (iv) the selling of his stocks by the employee).

As the Circular states that employers have to notify the relevant tax authorities in charge of the control of these indigenous companies, its scope is limited to indigenous companies. Thus, it appears that only Luxembourg resident companies, be it due to their place of incorporation or their head office, and subsidiaries of non-resident companies which want to offer to their employees a stock option plan would have to undertake the above-mentioned notification.