There are several different reasons why companies choose to implement options and share plans or the equivalent and those will naturally depend on the size of the company and its specific objectives, namely:
- recruiting, retaining, and motivating employees;
- offering a competitive remuneration package compared to other employers/competitors;
- improving the employee’s performance;
- aligning interests of shareholders and employees;
- encouragement of employees’ loyalty.
According to the Portuguese Personal Income Tax Code, any gains derived from the attribution of stocks/options/purchase rights by the employer are deemed as employment income.
The taxable moment for the attribution of shares/purchase rights occurs at grant. Nonetheless, in case (i) the shares/purchase rights, (ii) the disposal rights, and (iii) the right to receive the stock purchase rights’ forfeitures in case of termination (at least, in a “bad leaver” scenario) are only transferred to the employees at the end of a restriction period imposed under the plan (i.e., the vesting/settlement date), taxation shall occur at the vesting/settlement (and not at grant). On the other hand, the taxable moment for the attribution of stock options shall occur at exercise.
The taxable amount shall correspond to the difference between the Fair Market Value (FMV) of the stocks/options/purchase rights at the taxable event and the amount paid by the employees to acquire them (if any).
Especially regarding employment income, taxation is due at the marginal tax rates applicable to “ordinary” residents up to 53 percent. In case the employee decides, in a later moment, to proceed with the sale of its shares, the capital gain (if any) is taxed at a flat rate of 28 percent.2
For Social Security purposes, the discounts awarded in respect of the acquisition of the employer’s shares and stocks are excluded from Social Security and, therefore, no Social Security contributions shall be due in Portugal on this income.