Insights | December 11, 2020

Positive changes in employee share offerings in non-listed companies

The Finnish Parliament has accepted material changes in the taxation of share issues to employees in non-listed companies. According to the new regime, employees of non-listed companies would be entitled to subscribe for shares in the employer company based on the net asset value per share (the mathematical value), provided that this right is granted to the majority of employees. The new regime will be applicable to share issues adopted as from 1 January 2021.


Valuing the shares based on their net asset value can offer significant benefits to employees

In comparison with the existing rule, according to which employees are entitled to subscribe for shares in the company in certain circumstances for 10% below fair market value without tax implications, the new regime can be very beneficial as in many cases the net asset value per share can be significantly lower than e.g. the price paid by investors. In any case, using the net asset value per share removes any uncertainty connected with the valuation as it is easy to calculate objectively and the company does not have to prove the fair market value separately to the tax authorities.

Key questions

  • The net asset value per share is calculated by dividing the company’s net assets (as defined in the Valuation of Assets for Tax Purposes Act) by the number of outstanding shares. The calculation of net assets is based on the latest financial statements approved by the company’s shareholders at a general meeting, subject to adjustments for the amount of equity invested in and distributed by the company (e.g. dividends).
  • The right to subscribe for shares in the company must be given to the majority of employees, i.e. more than 50%. This does not, however, mean that the majority of employees would have to exercise this right. It should also be noted that the employees subscribing for shares must be employees of the company in which shares are offered. Unfortunately, the rule does not apply to employees of a subsidiary or the parent company.
  • The number of shares offered does not have to be the same for all participating employees, but the terms of the share issue must be objectively defined for all participants. According to the Government Bill, an example of this is where the number of shares offered is based on the employee’s gross salary. As the salaries in start-ups can be low, the Finance Committee suggested that the number of shares offered could be based on the value of the employee’s work contribution to the company despite the low amount of monetary compensation.
  • According to the Finance Committee, it would be possible for the shares subscribed for to be subject to various leaver provisions (e.g. linked to the continuation of the employment) without recharacterizing the shares as employee options.
  • The regime would not be applicable to employees who (together with any of their family members) directly or indirectly own more than 10% of the company’s shares or hold more than 10% of the voting rights in the company. In addition, it would not apply to board members.

We are happy to assist

The utilization of the new regime should be planned carefully beforehand in order to meet all the requirements set out in the legislation and to ensure favorable tax treatment. We are happy to discuss the new regime and the possibilities it provides to your business to more efficiently provide incentives to your employees and encourage them to commit to the business.