How are employee share options and stock grants taxed in Germany?

Germany taxes employee share options and restricted stock units (RSUs) as employment income (Arbeitslohn) at the time they are exercised or vest, not when the shares are later sold. The taxable amount is the market value of the shares at exercise or vesting minus any price paid by the employee. This gain is added to salary and subject to Lohnsteuer, Solidaritätszuschlag, and social security contributions at the standard employment income rates.

For example, if an employee exercises options to buy shares worth €50,000 for an exercise price of €10,000, the €40,000 gain is treated as salary and taxed accordingly. The employer is required to withhold Lohnsteuer on this amount and pay the employer's share of social insurance. The employee's cost basis for future capital gains tax purposes is the market value at exercise (€50,000 in the example), not the exercise price.

Germany offers a modest tax exemption for employee equity: up to €2,000 per year in employer-granted equity (shares given at a discount, matching contributions, or similar) can be received tax-free under §3 Nr. 39 EStG. For startup employees, a special deferral rule introduced in 2021 allows tax to be deferred until an exit event (sale, IPO) or 12 years after vesting, or when the employee leaves the company, whichever comes first. Once shares are sold, any additional gain since exercise is taxed under Abgeltungsteuer at 25% if held in a bank account, or as a private sale under §23 EStG rules.

This is general information only, not professional tax advice. Consult a qualified tax professional for your specific situation.