How is share-based compensation generally taxed?
Taxation of share-based compensation may vary per country. As a general rule, should the stock options accrue value, any benefit from the exercise or transfer of the stock options is usually subject to income tax.
In most countries equity compensation is regarded as an employment benefit and will be taxed as such, meaning that withholding and social security contributions are required. If withholding is applicable in your country, your employer will withhold payroll tax from earned income.
How are stock option subscriptions taxed in Finland?
When subscribing the options taxes are generally based on the difference between Volume Weighted Average Share price (VWAP) on the subscription date and the subscription price.
Example: The employee has received an option right with which he can subscribe for 1,000 shares of his employer company at a unit price of EUR 5. At the time of subscription, the Volume Weighted Average Share Price is EUR 10. The employee will receive a total benefit (1,000 x (10 - 5)) in the amount of EUR 5,000.
What happens when I sell stock options in Finland?
Options received free of charge don't have any acquisition price. This means that if you sell your options, you have to pay income taxes on the total value of options sold.
Example: The employee has received an option right with which he can subscribe for 2,000 shares in his employer company at a unit price of EUR 10. The employee sells 500 stock options on the stock exchange at a unit price of EUR 8. He will receive a total benefit (500 x 8) of EUR 4,000.
Where can I find more information about taxation of stock options?
Please also have a look at the Finnish tax authorities tax advice (FI) and the unofficial English translation.
If you are tax liable in another country than Finland, please contact your local tax advisor.
Please also have a look at the company plan materials in the Incentive portal from Library for more information.