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> When employees in Germany exercise options, they have to pay income tax on the difference between the fair market value and the strike price, and that rate ru

> When employees in Germany exercise options, they have to pay income tax on the difference between the fair market value and the strike price, and that rate runs from 14% to 47.5%. They also have to pay a 25% capital-gains tax on additional profits when they sell their shares. almost exactly like in the US. hence the GP’s complaint.

fragmede 7y ago
Depends on if they're ISOs or NSOs. Not having to pay income tax on the difference at exercise time makes all the difference.
defertoreptar 7y ago
I didn't want to make my post needlessly long, but the article continues, > In contrast, American employees typically pay a 0% to 20% rate on capital gains when options are redeemed, though they may have to pay additional levies when they’re exercised, depending on the timing and the type of equity incentive program. Germany and 14 other countries, including Sweden and the Netherlands, are more burdensome than the U.S. regarding options, according to a 2018 study by Index Ventures, a venture capital firm in London and Silicon Valley.
- sologoub 7y ago
  That’s not accurate at all. To get the 0%, you have to exercise at strike price (only way to do that is to forward exercise your vesting schedule which is in theory great, but I have yet to see this allowed by a company for normal employees) AND you have to be under a certain threshold of income (39k for single and 78k for married [1]). So in reality 0% is just not possible for most people with these options. When you exercise, the spread between strike and fair market value is taxed, whether you sell or not, or even can sell. If the company is private, you have to pay and hope they become public or get sold. If you happen to live in CA, add some more tax on top of that. Now, as a founder, where you do not need to use options, the math is different, but still not zero percent. [1] https://www.nerdwallet.com/blog/taxes/capital-gains-tax-rates/ https://www.nerdwallet.com/blog/taxes/capital-gains-tax-rate...
  - x0x0 7y ago
    A data point: we allowed this for all our employees (83b for everyone!) and no one took us up on it. It was frustrating because as a founder, I viewed it as a benefit, but employees didn't. At all.
    - cco 7y ago
      My guess is very few people knew that AMT was a thing and/or didn't have enough liquid cash to buy at the time. Had I know that in a few years I'd have a tax bill in the tens of thousands of dollars I'd have taken a loan out immediately to early exercise all my options and been much better off.

fragmede 7y ago

Depends on if they're ISOs or NSOs. Not having to pay income tax on the difference at exercise time makes all the difference.

defertoreptar 7y ago

I didn't want to make my post needlessly long, but the article continues, > In contrast, American employees typically pay a 0% to 20% rate on capital gains when options are redeemed, though they may have to pay additional levies when they’re exercised, depending on the timing and the type of equity incentive program. Germany and 14 other countries, including Sweden and the Netherlands, are more burdensome than the U.S. regarding options, according to a 2018 study by Index Ventures, a venture capital firm in London and Silicon Valley.

sologoub 7y ago
That’s not accurate at all. To get the 0%, you have to exercise at strike price (only way to do that is to forward exercise your vesting schedule which is in theory great, but I have yet to see this allowed by a company for normal employees) AND you have to be under a certain threshold of income (39k for single and 78k for married [1]). So in reality 0% is just not possible for most people with these options. When you exercise, the spread between strike and fair market value is taxed, whether you sell or not, or even can sell. If the company is private, you have to pay and hope they become public or get sold. If you happen to live in CA, add some more tax on top of that. Now, as a founder, where you do not need to use options, the math is different, but still not zero percent. [1] https://www.nerdwallet.com/blog/taxes/capital-gains-tax-rates/ https://www.nerdwallet.com/blog/taxes/capital-gains-tax-rate...
- x0x0 7y ago
  A data point: we allowed this for all our employees (83b for everyone!) and no one took us up on it. It was frustrating because as a founder, I viewed it as a benefit, but employees didn't. At all.
  - cco 7y ago
    My guess is very few people knew that AMT was a thing and/or didn't have enough liquid cash to buy at the time. Had I know that in a few years I'd have a tax bill in the tens of thousands of dollars I'd have taken a loan out immediately to early exercise all my options and been much better off.