ESOP / VSOP

Employee participation programmes bundle incentives for key personnel to share in the company’s success. An ESOP (‘employee stock option plan’) grants options over real shares. The former ‘dry income’ problem in Germany (a wage-tax liability without a corresponding inflow of liquidity) was significantly eased for qualifying start-ups by the reform of Section 19a of the German Income Tax Act (EStG) (in force since 2024): taxation can be deferred to the point of sale or liquidity event, a change of employer, or by up to 15 years, provided the relevant SME and age criteria are met.

VSOPs (‘virtual stock option plans’) remain widespread in DACH practice because they can be implemented under the law of contract (without notarisation): employees receive only a contractual claim to a payout in an exit scenario, without any shareholder status. For tax purposes, VSOP proceeds are treated as wages, which is a key difference from ESOPs eligible under Section 19a. In both variants, vesting, cliff and good-leaver/bad-leaver provisions are decisive.