Employee Participation in Germany Becomes More Attractive from a Tax Perspective:
Young Companies Will Be Able to Offer More to Talented People in the Future

In the 5 March 2025 edition of Frankfurter Allgemeine Zeitung (FAZ), Germany’s leading daily, Stefan Schultes-Schnitzlein and Nico Neukam explain the opportunities offered by the recent revision of section 19a of the German Income Tax Act (EStG) with regard to employee financial participation.

The provision allows for a tax deferral until a later sale when shares or profit participating rights are issued to executives and other employees at a discount. This avoids the taxation of 'dry income' at the time of the issuance. Future increases in the value of the employee participation instrument are subject to the attractive taxation of income from capital gains.

With the renewed revision of §19a of the Income Tax Act (EStG), a group privilege was introduced. Since then, the participation instrument no longer needs to be directly issued by the employer company, allowing employees of group subsidiaries to benefit as well.

To qualify for the tax privilege, the company must be less than 20 years old and, in the year of issuance of the participation instrument or in one of the six preceding calendar years, had fewer than 1,000 employees and either an annual turnover of no more than €100 million or an annual balance sheet total of no more than €86 million.