Tips regarding the new start-up employee participation

As of 1 January 2024, employees of start-ups and young companies have been able to participate in the company success of their employer more easily and with tax benefits by issuing start-up employee shares. This requires, among other things, correct processing in the payroll account and the form L16.

Tax and social security contribution benefits apply to all legal forms as long as the company is a young small or medium-sized company (start-up). Besides the size criteria, the foundation of the start-up must have taken place within the last 10 years. The employee shares must be issued after
31 December 2023 and the amount per employee shall not exceed the limit of 10%. The transfer of the share must be linked to the consent of the issuing company (restriction of transferability). In addition, the employee must actively opt for the application of the tax deferral and declare this in writing.

Tax and social security contribution benefits in detail

If the statutory requirements for a start-up employee participation are met, there is a deferral of taxation and of the social security contribution obligation and the participation is subject to a simplified participation valuation. The monetary benefit from the start-up employee participation is only deemed to have been paid upon sale or the occurrence of other circumstances listed by law.

The simplified participation valuation provides for

• 75% of the assessment basis to be accounted for as other remuneration at 27.5% and exempt from non-wage labour costs and
• 25% as other remuneration at the wage tax rate and subject to non-wage labour costs.
• The social security contribution basis is the proceeds realised in the event of a sale; in the case of other inflows, social security is calculated on the basis of 30 times the maximum daily contribution basis (EUR 6,060/month in 2024).

Realisation on the payroll account and L16

The employee’s declaration that the new regulation on start-up employee participation is to be applied and the specific amount of the participation in percent must be recorded on the payroll account and L16. In addition, the employee’s total shares in the company must be stated, as only those shares that do not directly or indirectly exceed the 10% limit can make use of the benefit. The inflow and the termination of the employment relationship without inflow (see below) must also be shown in the payroll account.

Special case: Deferral beyond the end of the employment relationship

If the start-up employee participation is issued in the form of company shares in a FlexCo or comparable shares, a further deferral of the tax liability is possible upon termination of the employment relationship. As a result, more obligations arise for the employer:

The issuing company must declare the tax deferral in writing on the employee’s payslip. The Austrian tax authority must be notified of any subsequent (after termination of the employment relationship) sale or cancellation of the restriction of transferability and the employer is liable for the payment of income tax. Due to practical implementation reasons, it is not possible to defer the obligation to pay social security contributions after the termination of the employment relationship.

Participation allowance vs. benefited start-up employee participation

It is difficult to say in advance whether the employee’s option to apply the new regulation is beneficial. The decisive criterion is the future development of the start-up and the associated further development of the start-up employee participation. If the employee does not opt for the new regulation and the associated deferral of taxation, the tax liability arises in any case when the shares are transferred (however, taking into account a tax allowance of EUR 3,000 if applicable).